Title: Middle East Tensions and Powell’s Comments Shake Forex and Global Markets
Source: Originally published by Mitrade
Author: MiTrade News Team
Date: October 18, 2025
Geopolitical risks in the Middle East have intensified, causing significant volatility across global markets, including the foreign exchange (Forex) sector. Simultaneously, U.S. Federal Reserve Chair Jerome Powell’s recent comments on inflation and the American economy have added further complexity, pushing traders to reevaluate risk assumptions. Together, these developments have led to movements in key currencies, commodities, and equity indices, reshaping market expectations heading into the end of 2025.
This article explores the market reactions to recent political and economic news, highlights movements in major Forex pairs and commodities, and examines how investors are adjusting their strategies amid rising levels of uncertainty.
Geopolitical Tensions Send Shockwaves Across Global Markets
Renewed conflict in the Middle East added significant pressure on financial markets. Investors reacted to reports of Israeli strikes, with fears that an extended regional conflict could disrupt oil supply lines and spark a broader crisis.
Key reactions from markets include:
– Safe-haven demand surged, benefiting the U.S. dollar, Japanese yen, and gold.
– Oil prices climbed after news of Israeli operations in Gaza, prompting fresh concerns of global supply shortages.
– Risk assets such as stocks, cryptocurrencies, and the Australian dollar fell as investors moved toward lower-risk instruments.
– Forex volatility increased, especially in emerging-market currencies with exposure to energy imports or geopolitical risks.
The heightened tensions acted as a circuit breaker for what had been relatively orderly markets. Traders moved aggressively to reduce positions in risk assets, while demand grew for safe-haven investments in anticipation of potential conflict escalation.
Impacts on Major Currencies
U.S. Dollar (USD)
The U.S. dollar gained in strength throughout the week as investor sentiment leaned risk-averse. Powell’s latest speech further supported the greenback, as he suggested that monetary policy might remain tight for longer to ensure inflation is properly contained.
Highlights:
– The U.S. Dollar Index (DXY) climbed back above 106, touching intraday highs near multi-week peaks.
– Powell noted that strong economic data might justify additional rate hikes, triggering renewed interest in USD-denominated assets.
– Despite treasury yields briefly falling as investors rushed to safe bonds, the dollar held firm due to its safe-haven appeal.
Euro (EUR)
The euro was weaker against the dollar during the week after lackluster Eurozone economic data clashed with rising U.S. yields and Middle East instability. The eurozone’s ongoing struggles with low growth and sluggish inflation further dragged on investor confidence.
Key developments:
– EUR/USD dropped below the 1.0550 level, testing its lowest point in more than a week.
– Germany’s ZEW sentiment indicator showed further deterioration in economic sentiment, weighing down the euro.
– ECB officials hinted at a pause in rate hikes, underlining diverging central bank policies between Europe and the U.S.
Japanese Yen (JPY)
The yen initially strengthened due to its status as a traditional safe haven. However, its gains were limited due to the Bank of Japan’s ultra-loose monetary policy, which remains in stark contrast to the Federal Reserve.
JPY outlook summary:
– USD/JPY retreated from highs above 149, reflecting investor demand for safer assets.
– While the yen gained slightly, interventions by Japanese authorities remained absent, leading to market speculation about when or if Tokyo will act.
– The yield differential between Japanese and U.S. bonds continues to pressure the yen in the long term.
British Pound (GBP)
The British pound saw moderate movement but was mostly pressured lower by both domestic political uncertainty and broader market risk aversion.
Market factors affecting the pound include:
– GBP/USD declined toward the 1.21 level, reflecting broad-based dollar strength.
– Unexpectedly hawkish remarks from BoE members, indicating that more work needs to be done to combat
Read more on EUR/USD trading.