Geopolitical Jitters, GBPUSD hits 3-year highs, Sticky UK Inflation: What’s Driving Markets Today?

John Hall • May 21, 2025

πŸ”Ί Reports of a potential Israeli strike on Iranian nuclear sites have reignited safe haven flows, sending the dollar and U.S. equity futures lower while lifting oil and gold.

Key Market Takeaways:

πŸ“‰ Geopolitical tensions spark risk-off move

Reports of an Israeli strike on Iranian nuclear facilities triggered a flight to safe-haven assets, including gold, U.S. Treasuries, and the yen, as investors seek shelter amid rising geopolitical uncertainty.


πŸ’· BoE rate cut expectations dialed back

Stronger-than-expected UK inflation data has led markets to scale back forecasts for near-term interest rate cuts from the Bank of England, providing support for the pound.


Market Recap:

  • πŸ”» AUD Takes a Hit After RBA Surprise

The Australian dollar weakened sharply, making it the day’s worst-performing major currency. The move came after the Reserve Bank of Australia adopted a more dovish tone in its latest policy update, prompting traders to reprice future rate hike expectations. As a result, GBPAUD rose around 1%, reflecting increased demand for sterling relative to the Aussie.


  • πŸ’΅ Dollar Remains Under Pressure

The U.S. dollar continued to struggle, with selling pressure persisting as 30-year Treasury yields tested the 5% level again—a sign that bond investors remain cautious on the long-term inflation and rate path. The soft tone in yields is keeping the dollar on the back foot.


  • πŸ‡¨πŸ‡¦ Canada CPI Misses Forecasts

Inflation data from Canada came in weaker than expected, leading markets to reduce the expected number of rate hikes from the Bank of Canada this year. The release reinforces the narrative that central banks may be nearing the end of their tightening cycles.


Today’s Market Update:

🌍 Geopolitical Tensions Lift Safe Havens, Weigh on USD

Markets opened with a cautious tone following reports from CNN suggesting Israel may be preparing to target Iranian nuclear facilities.

  • USD and U.S. equity futures slipped, while oil prices rose, reflecting heightened geopolitical risk.
  • Investors sought shelter in traditional safe havens, driving demand for the Japanese yen, Swiss franc, euro, and gold.
  • Meanwhile, 30-year U.S. Treasury yields remain elevated just above 5%, as concerns linger over U.S. debt and fiscal deficits.


πŸ‡¬πŸ‡§ UK Inflation Surprise Supports Sterling

This morning’s stronger-than-expected UK inflation data prompted markets to dial back expectations for rate cuts by the Bank of England:

  • Only one rate cut is now fully priced in for 2024, with odds of a second now at just 50%.
  • In response, GBPUSD touched a fresh 3-year high, as traders reassessed the pace of monetary easing.


πŸ—“οΈ Event Watch: G7 Meeting Begins

While today's calendar is light on data releases, attention will turn to the G7 finance ministers and central bank governors meeting in Canada.

  • Markets will be watching closely for any comments on foreign exchange policy, which could influence the U.S. dollar’s direction in the days ahead.


21st May 2025

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