Global markets turn cautious amid Middle East tensions

Financial markets traded cautiously on Tuesday as investors assessed the latest developments in the Middle East and awaited key economic data releases from Europe and the United States.

During the European session, market participants focused on the upcoming release of the preliminary May Harmonized Index of Consumer Prices data from Eurostat.

The report is the European Central Bank’s preferred gauge of inflation in the Eurozone.

Later in the day, investors were set to monitor the US Job Openings and Labor Turnover Survey data for April.

Safe-haven flows support US Dollar

Risk sentiment weakened after reports emerged that Iran’s negotiating team had halted message exchanges through mediators with the United States in protest against attacks on Lebanon.

As a result, safe-haven demand strengthened across financial markets.

The US Dollar gained against major currencies, with the US Dollar Index rising more than 0.2% on Monday.

At the same time, oil prices surged, with a barrel of West Texas Intermediate (WTI) crude climbing nearly 5%.

The move in energy markets came after Iran reportedly threatened to completely block the Strait of Hormuz and the Bab El-Mandeb Strait if necessary, raising concerns about potential disruptions to global energy supplies and shipping routes.

Diplomatic signals offer some relief

Despite heightened tensions, comments from US President Donald Trump helped ease some market concerns.

Trump stated that he had spoken with Israeli Prime Minister Benjamin Netanyahu and requested that Israel refrain from carrying out a major raid on Beirut.

According to Trump, Israeli troops were subsequently turned around.

The US President also told ABC News that he believes a deal to reopen the Strait of Hormuz and extend the ceasefire with Iran is achievable over the next week.

Against this backdrop, US stock index futures traded modestly lower during the European session, reflecting continued investor caution.

Meanwhile, the US Dollar Index remained steady above the 99.00 level.

Currency markets await key economic signals

In foreign exchange markets, EUR/USD recovered toward the 1.1650 area after ending the previous session in negative territory.

Investors awaited the Eurozone inflation report, with annual HICP inflation expected to rise to 3.2% in May from 3.0% in April.

The British pound also remained supported, with GBP/USD holding moderate gains above 1.3450 during the European morning.

Market participants were also preparing for testimony from Bank of England Governor Andrew Bailey before the Lords Economics Affairs Committee later in the day.

Meanwhile, USD/JPY traded within a narrow range near 159.70 after posting slight gains on Monday.

Gold and the Swiss franc recover

Gold prices rebounded on Tuesday after falling 1% in the previous session.

The precious metal traded comfortably above $4,500 during European trading hours as investors continued to balance geopolitical risks against improving sentiment surrounding diplomatic negotiations.

The Swiss Franc also strengthened against the US Dollar, recovering part of Monday’s losses.

The USD/CHF pair traded near 0.7850 at the time of writing, down from highs of 0.7884 recorded a day earlier.

Swiss trade surplus edges higher

Economic data released by the Swiss Federal Statistics Office showed that Switzerland’s trade surplus increased slightly in April.

According to the report, the country recorded a trade surplus of CHF 3,098 million in April, compared with CHF 3,092 million in March.

The agency noted that the decline in exports during April was offset by a similar reduction in imports, resulting in a modest increase in the overall trade surplus.

With geopolitical developments continuing to drive market sentiment, investors remained focused on both diplomatic headlines and upcoming economic releases for further direction.