Market outlook: tensions in the Middle East push gold higher, while the Fed remains cautious on rate cuts

Gold rises on the back of nuclear tensions. Switzerland cuts rates to zero, while markets watch the Fed’s stance on interest rates. The world of cryptocurrencies is under scrutiny.

Over the past week, global stock markets held up after the White House scaled back the likelihood of an immediate military intervention in Iran. The European Stoxx 600 index rose 0.5%, while futures on the S&P 500, Nasdaq 100 and Dow Jones fell 0.2%. Brent slipped 1.9% to $77.33, easing fears of a supply shock. The dollar weakened slightly, while Bitcoin gained 2%. In particular, on Friday European equities rose as concerns eased over an imminent U.S. involvement in the conflict between Israel and Iran. Gains were led by travel and banking stocks, while energy posted a slight decline.

Signs of diplomatic moderation and the decision by global leaders to postpone any major interventions for at least two weeks helped calm investors’ nerves, allowing markets to regain some stability. And so, domestic equity markets continued to move sideways for the sixth consecutive week, but still managed to close with satisfactory gains. Investors brushed aside the midweek jitters caused by the escalation of the Iran-Israel conflict and the sharp rise in crude oil prices. Sector performance over the week was mixed. Interest-rate-sensitive sectors such as autos, banks, financials and real estate posted gains, while a rebound in IT stocks further improved overall market sentiment. On the other hand, defensive sectors lagged amid a broader risk appetite, while metals and energy stocks saw some profit-taking.

On the interest-rate front, the confrontation between the U.S. government and the Federal Reserve continues. Indeed, Donald Trump, on the eve of last Wednesday’s rate decision, had called Federal Reserve Chair Jerome Powell “stupid.” According to the U.S. president — who believes it is unlikely that Powell will cut rates this year — the Fed’s inaction is costing the United States billions, and rates should be at least 2 percentage points lower. The Fed, however, left rates unchanged at 4.25%-4.50%, and while keeping rates unchanged it signaled that it is closely monitoring any signs of an economic slowdown. Progress on inflation remains slow, but markets now expect two cuts by year-end. Traders are closely watching oil and geopolitical tensions, which could affect the timetable of the Federal Reserve. Meanwhile, the “fiery” version of Trump — whose mood swings have long been familiar — has hinted that he could appoint a new chairman before Powell’s term expires in 2026, threatening a full-blown “Erdogan-style” move that would certainly not be good for the rating of U.S. debt or the dollar.

On the alternative investments front, after topping $3,600 an ounce last week, gold prices remain elevated around $3,390, driven by markets’ reaction to Israeli airstrikes on Iranian nuclear and missile infrastructure. Investors continue to seek protection in traditional safe-haven assets, underpinning the strong bullish momentum in the precious metal amid fears of a possible widening of the conflict in the Middle East. Brent, by contrast, fell 1.9% to $77.33, easing fears of a supply shock, while Bitcoin rose 2%, topping $106,000.

Outside the European Union (but still in the Old Continent), the Swiss National Bank has taken its benchmark rate to 0%, with a sixth consecutive cut, as signs of deflation return and the franc strengthens. The central bank hinted that further easing could follow if conditions worsen, in sharp contrast with the Federal Reserve and the Bank of England, which have instead kept rates unchanged. In the United Kingdom, retail sales fell 2.7% in May, marking the weakest reading since 2023. Food sales dropped 5%, and all major retail sectors posted declines. The sharp drop wiped out the gains made at the start of 2025 and points to a weakening economy in the second quarter; now the Labour government is under pressure to revive growth and avoid tax increases.

A side note — though not too much so — the debate over cryptocurrencies and the need to regulate them is growing. Indeed, the explosive growth of stablecoin, fuelled by Circle’s IPO and Wall Street interest, is drawing the attention of global regulators. According to Citigroup, the sector could reach $1.6 trillion by 2030, putting traditional finance at risk as enormous amounts of liquidity flow into digital tokens. These coins, backed largely by U.S. Treasury securities, now hold more short-term U.S. public debt than some major nations. A sudden collapse could trigger destabilising sell-offs, send yields soaring and drain market liquidity.