Persistent inflation could diminish consumer purchasing power

The global market continues to hold out hope for a ceasefire in the Middle East, yet the environment remains unstable with tension and uncertainty.

In the absence of a finalized peace agreement to resolve the conflict, a ceasefire may be extended for an additional 60 days if no accord is reached between the US and Iran.

This situation has led to a sharp drop in oil prices, falling nearly 10 percent, which still poses a burden for oil-importing nations.

Much of the optimism relies heavily on one-sided statements from President Donald Trump, who claims the peace deal is “largely negotiated.”

However, investors are puzzled by the absence of confirmation from various Iranian sources that any agreement with the US has been finalized.

Despite the positive rhetoric from the US President, both parties have continued their assaults on each other, leaving the market uncertain about the ultimate outcome.

Alarmingly, it has been over seven weeks since the US and Iran agreed to a ceasefire and began discussions to resolve the conflict and stabilize the situation in the Strait of Hormuz.

This sentiment has allowed 10-year bond yields to ease by 12 basis points to 4.4 percent, and the S&P index has climbed by more than 1 percent.

On the economic front, last week’s revision of the US first-quarter GDP growth from an initial estimate of 2.0 percent to 1.6 percent was anticipated by the market, given the worsening economic conditions stemming from the geopolitical crisis, particularly the effects of rising oil prices and trade tensions.

Strong growth in imports played a significant role in pulling GDP downward. Meanwhile, data on US personal income and spending highlighted the real challenges posed by increased energy costs, with Personal Consumption Expenditure (PCE) rising to 3.8 percent, the highest in three years, largely due to gasoline prices.

A concerning risk is that persistent inflation could diminish consumer purchasing power.

Currently, the futures market is anticipating a 60% chance of a Federal Reserve rate increase by the year’s end.

However, a larger risk exists that escalating inflation could prompt the Fed to take action more swiftly unless inflationary pressures subside.

If uncertainties surrounding the conflict continue, this Friday’s release of non-farm payrolls (NFP), a key employment report under normal circumstances will be closely scrutinized, as traders seek reasons to stay engaged in the market.

The expected figures for May are 96,000 compared to 115,000 in April, with the unemployment rate projected to remain steady at 4.3 percent. Recent NFP data from the US has been mixed.

Additionally, the US Dollar has seen a slight decline due to easing geopolitical tensions and falling oil prices. However, currency traders are cautious about further weakening the dollar, given rising inflation figures that support a potential interest rate hike. Higher US interest rates make the currency more appealing due to the yield differential.

While the Swiss Franc continues to strengthen, the Japanese Yen remains under pressure, although it is weakening at a slower rate amid concerns of Bank of Japan intervention.

Notably, the Canadian dollar, or Loonie, has not benefited from declining oil prices, as the Canadian economy is heavily dependent on oil exports, which significantly contribute to its economic landscape. Furthermore, CAD has been impacted by disappointing Canadian GDP figures, revealing a contraction of 0.1% against anticipated growth of 0.1 percent.

OIL Brent $91.12

In the meantime, the future of oil prices will greatly hinge on the results of the peace talks between the USA and Iran. Optimism surrounding a potential 60-day extension of the ceasefire has caused Brent oil to drop over 9 percent over the weekend, closing near $92. However, it may not decline significantly unless both parties announce a truce.

The Strait of Hormuz remains a contentious issue that must be addressed at the highest levels, and shippers and insurers will need to be mindful of their pricing.

I still maintain that prices around $80 present a buying opportunity, as oil prices are likely to rise in the weeks ahead. This belief stems from the depletion of the Strategic Petroleum Reserve (SPR) and the ongoing shortfall in oil supply necessary to replenish it to full capacity.

GOLD @ $4539

We also witnessed significant fluctuations in gold prices primarily due to developments concerning the US-Iran conflict. Subsequently, there was a recovery in gold prices as oil prices softened amid hopes of improved relations between the two nations.

As long as geopolitical news continues to circulate, it will guide market movements depending on the nature of the information released.

In the absence of any delays in announcing outcomes, traders may focus on US economic data this week, as several key economic indicators are set to be published by federal agencies.

WEEKLY OUTLOOK - Jun 1-5

#GOLD @ $4539- This week, gold must maintain levels at $4465 and $4385 to see any gains. A move above $4598 could push it to $4660 or higher before a downturn occurs.

However, much will depend on new inflows, which means volatility is likely to remain.

#EURO 1.1660- Euro must surpass 1.1740 to make further advancements. Nevertheless, a decline below 1.1570 would heighten the risk of testing the 1.1490 levels before stabilising.

#GBP @ 1.3461- As long as the Pound Sterling is able to hold the support at 1.3365, it could try to rise. A breakthrough of 1.3570 would enable additional gains. Conversely, if it drops below the support level, there could be a risk of falling to 1.3310.

#JPY @ 159.27- The $/JPY pair is expected to test 159.90 and 160.65. A breakout above these levels could lead to a rise towards 161.60. On the other hand, if it falls, pay attention to 157.90, as a breach of this level could lead to a decline towards 155.40.

Copyright Business Recorder, 2026