Escalating Middle East tensions shook markets Tuesday, sparking a risk-off wave that lifted oil, sank stocks, and dragged Treasury yields lower.

Trump’s hawkish Iran stance and weak U.S. data fueled volatility, sending the dollar to its strongest level in over a month as investors braced for possible U.S. military action.

Here are headlines you may have missed in the last trading sessions!

Headlines:

• Ships collided near the Strait of Hormuz, which turned out to be a non-security issue
• Bank of Japan Maintains Policy Rate at 0.5%, Slows Bond Purchase Reductions
• U.S. and U.K. announce a trade deal, but steel imports issue remains unresolved
• Germany ZEW economic sentiment index for June: 47.5 (32.0 forecast; 25.2 previous)
• Euro area ZEW economic sentiment index for June: 35.3 (5.0 forecast; 11.6 previous)
• Canada foreign securities purchases for April: -9.36B (-4.23B previous)
• ECB official Villeroy thinks rates are “in a good position,” but that they need “agile pragmatism” amid Israel-Iran war uncertainties
• U.S. retail sales for May: -0.9% m/m (-0.4% m/m forecast; 0.1% m/m previous); 3.3% y/y (4.9% y/y forecast; 5.2% y/y previous)
• U.S. industrial production for May: -0.2% (0.1% forecast; 0.0% previous); 0.6% y/y (1.1% y/y forecast; 1.5% y/y previous
• U.S. business inventories for April: 0.0% m/m (0.2% m/m forecast; 0.1% m/m previous)
• U.S. NAHB housing market index for June: 32.0 (37.0 forecast; 34.0 previous), the lowest since 2012
• Trump calls for Iran’s ‘unconditional surrender’ as Israel-Iran air war rages on
• U.S. immigration officials have walked back ICE limits targeting farms, restaurants, hotels and food processing plants
• International Energy Agency: Global oil demand to keep growing by 2029 despite China’s looming peak
• U.S. President Trump set to grant another 90-day extension to avoid TikTok disruption
• Canada to sanction over 40 entities in Russia as it reaffirmed its support for Ukraine

Broad Market Price Action:

Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView

Major assets showed signs of risk-off trading on Tuesday as tensions in the Middle East drove price action across the board.

The S&P 500 lost 0.8% after a round of disappointing U.S. data added to growing fears of potential military involvement in the Israel-Iran conflict. European markets also pulled back, with Germany’s DAX down 1.1%, France’s CAC 40 off by 0.8%, and the FTSE 100 slipping 0.5% as geopolitical worries weighed on sentiment.

Crude oil was the big winner. WTI jumped more than $3 to close at $73.30, its highest finish since late January, as Trump’s tough talk on Iran revived supply disruption concerns. Treasuries caught a bid, sending the 10-year yield lower by 7 basis points to 4.38%. Oddly enough, gold stayed flat near $3,380 despite the rush for safety.

Bitcoin didn’t hold up either. It dropped to $104,500 from last week’s high near $109,350, showing that crypto remains shaky when market jitters kick in.

FX Market Behavior: U.S. Dollar vs. Majors:

Overlay of USD vs. Majors Chart by TradingView

The U.S. dollar had its best day in over a month as geopolitical fears took center stage. Things started off shaky during the Asian session. President Trump abruptly ended his G7 trip, stoking concerns about rising diplomatic tensions. At the same time, the Bank of Japan (BOJ) held its rates steady at 0.5% and confirmed that it would continue tapering its bond purchases. Governor Ueda signaled no urgency to hike again, pointing instead to upcoming U.S.-Japan trade developments.

The European session didn’t offer much direction either. German ZEW sentiment came in stronger than expected, but markets stayed stuck in ranges as traders waited for something more decisive.

That came during the U.S. session, when Israel signaled that American military involvement in the conflict with Iran could begin within days. The headlines triggered a rush into safe havens, lifting the dollar sharply across the board. Trump’s national security meeting only added to the risk-off mood.

Even disappointing U.S. data on retail sales and industrial production couldn’t slow the Greenback. With geopolitical fears running hot, traders likely put safety and liquidity ahead of fundamentals, and the dollar came out on top.

Upcoming Potential Catalysts on the Economic Calendar

• New Zealand Westpac consumer confidence for June 30 at 9:00 pm GMT
• New Zealand current account for Q1 2025 at 10:45 pm GMT
• Japan Reuters Tankan index for June at 11:00 pm GMT
• Japan machinery orders for April at 11:50 pm GMT
• Japan balance of trade for May at 11:50 pm GMT
• U.K. retail price index for May at 6:00 am GMT
• U.K. consumer prices index growth rate for May at 6:00 am GMT
• Euro Area current account for April at 8:00 am GMT
• Euro Area consumer prices index growth rate final for May at 9:00 am GMT
• New Zealand Global Dairy Trade price index for June 17
• U.S. housing starts and building permits for May at 12:30 pm GMT
• U.S. initial jobless claims for June 14 at 12:30 pm GMT
• U.S. EIA crude oil stocks change for June 13 at 2:30 pm GMT
• Euro Area ECB Lane speech at 3:00 pm GMT
• Canada BOC Macklem speech at 3:15 pm GMT
• U.S. FOMC decision and economic projections at 6:00 pm GMT
• U.S. overall net capital flows for April at 8:00 pm GMT
• New Zealand GDP growth rate for Q1 2025 at 10:45 pm GMT

The European session may see some movement in GBP and EUR pairs as traders react to U.K. inflation data and an ECB speech that could offer clues on rate plans.

But the main fireworks are expected in the U.S. session, where the Fed’s policy decision and economic projections could spark big moves in USD and risk assets.

Make sure you’re glued to the tube during these releases so you don’t miss out on any potential trade setups!

As always, stay nimble and don’t forget to check out our Forex Correlation Calculator when taking any trades!