Written by Shane Balkham
Donald Trump joined Israel’s attack on Tehran over the weekend after vowing to keep the US out of new global conflicts. In his typically blunt style, President Trump warned that there will either be peace or tragedy for Iran, as he looks to prevent the country from developing nuclear weapon capability.
The current uncertainty will be the capacity and capability of Iran’s response – the question being whether we will see diplomacy or retaliation from Tehran. Success will be deferred until Iran’s response is clear, however, the foreign minister told reporters that “the door for diplomacy should be always kept open, but this is not the case right now.”
Some politicians in Tehran have called for Iran to close the Strait of Hormuz, to disrupt oil supplies from the Gulf, a vital waterway for bulk shipping. Supply chain disruption is something that the markets have tackled before, with the pandemic, the Evergreen incident in the Suez Canal, and the invasion of Ukraine by Russia.
When geopolitical conflict flares, with the associated frenzied media headlines, we are often reminded just how much the world has changed over the past 10 or 20 years. The US is now a net energy exporter, and as such the implications of any escalation in the Middle East has a less significant impact than in the past. Markets also appear to be bearing this in mind, and little meaningful impact can be observed across equities, bonds, or currencies.
Last week we had the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ) hosting its respective meetings for interest rates. All three central banks held rates at their current position, but all with slightly different reasons. The Fed quoted uncertainty around tariffs and what that might do to inflation and the impact on the US consumer; ultimately the costs around tariffs have to be paid and some of that will undoubtedly fall on the US consumer.
When and by how much is unknown and until the Fed sees more clarity, it will seemingly be holding policy steady. However, given the steady slowdown we observe across a range of US economic metrics, staying at a level of interest rates that is too high for the economy to bear contains its own risks.
The BoE also held interests at their current level, but with two rates cuts already delivered this year (February and May), the committee moved slightly more towards future cuts, and with significantly less direct political pressure, the BoE is looking in a better position than its US counterpart.
The Bank of Japan (BoJ) also held a vote to keep short-term interest rates on hold at 0.5%. Like the Fed and BoE, the BoJ is looking to normalise interest rates, but unlike its counterparts, it is wanting to raise rather than cut. All central banks agree on the same thing, that the short-term remains extremely uncertain for global trade policies and the impact this will have on economic activity and prices.
We continue to remind and reiterate the importance of having a globally diversified portfolio, which has proved to be an effective way of navigating the volatile and quickly evolving global landscape. When uncertainty is prevalent, staying invested is the best course of action.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 23rd June 2025.
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