Market Overview
Global risk appetite surged today as markets priced in tentative progress toward a US-Iran settlement, though the precise terms remain ambiguous and both Washington and Tehran have issued divergent public statements regarding what has been agreed. This risk-on environment has triggered a broad dollar sell-off, with the greenback retreating across major currency pairs, while crude oil prices have retreated to two-month lows and equities and fixed income have posted solid gains. The People’s Bank of China reinforced the weakness in the dollar by setting its daily fixing at a fresh three-year low, signaling tacit acceptance of yuan strength.
United States
The dollar index has come under sustained pressure as investors rotate out of safe-haven positioning and into higher-yielding and cyclical assets. The broad greenback weakness reflects the market’s interpretation of reduced geopolitical risk and a recalibration of near-term Federal Reserve policy expectations. While the Fed’s inflation-fighting credentials remain intact, the prospect of a Middle East de-escalation has diminished the urgency for an aggressive monetary stance.
On the data front, the US economic calendar today includes May industrial output and manufacturing production figures, alongside the New York Federal Reserve’s June manufacturing survey. Consensus expectations point to a modest 0.2% increase in industrial output for May, a significant deceleration from the 0.7% gain posted in April. Manufacturing production is similarly anticipated to slow, following a 0.6% advance in the prior month. The manufacturing sector’s labor dynamics remain a key focal point: manufacturing employment added 25,000 jobs over the first five months of the year, though the sector shed nearly 160,000 positions throughout 2025. This context is crucial given that the service sector commands approximately four times the employment base of manufacturing.
The manufacturing ISM and PMI surveys both reached four-year highs in May, suggesting underlying resilience in the sector despite the anticipated slowdown in headline output figures. Traders should monitor whether today’s industrial production data validates the survey strength or signals a divergence between sentiment and actual production activity. The New York Fed’s manufacturing survey will provide additional color on regional business conditions and forward-looking capital expenditure plans.
Treasury yields have declined materially, with the 10-year yield falling 3 to 4 basis points to trade near 4.44%, as investors price in the reduced geopolitical premium and lower oil prices feed into inflation expectations. The yield curve dynamics remain a critical barometer for Fed policy expectations and recession risk assessment among institutional investors.
Eurozone
The euro consolidated in a relatively tight range ahead of the weekend, trading between approximately $1.1555 and $1.1590. The single currency recorded what appeared to be a bullish outside up day on June 11, driven by optimism surrounding a potential Middle East settlement. Today, the euro opened near $1.1570 and rallied to slightly above $1.1620 as the risk-on sentiment extended into the European session. Since reaching that high, the euro has consolidated and found support just below the $1.16 level, where options representing 1.43 billion euros expire today—a technical level that has attracted substantial option positioning and may continue to provide a floor for intraday moves. Nearby resistance has emerged in the $1.1640–$1.1650 area, and traders should monitor whether the single currency can establish a foothold above this zone.
The eurozone industrial production data released earlier this week showed a 0.1% increase in April following a revised 0.4% gain in March. Over the first four months of 2026, eurozone industrial output has remained flat in year-over-year terms, a stark contrast to the 1.2% increase recorded in the same January–April period of 2025. This suggests that eurozone manufacturing momentum has stalled materially. The aggregate trade surplus, seasonally adjusted, narrowed to 1.3 billion euros in April from 13 billion euros in April 2025. Through the first four months of the year, the eurozone’s cumulative trade surplus stands at 19.7 billion euros, down sharply from 70.4 billion euros in the corresponding period of 2025. This deterioration in the trade balance reflects both weakening external demand and potential shifts in global supply chains. The European Central Bank will continue to assess these economic crosscurrents as it contemplates its policy trajectory.
The Stoxx 600 index posted a gain of nearly 1.7% last week and is up 0.60% today, reflecting the broader risk-on tone and the market’s relief over potential geopolitical de-escalation. European benchmark yields have fallen 4 to 5 basis points across most sovereigns, with the 10-year JGB down almost 4.5 basis points.
United Kingdom
Sterling experienced volatility following the release of disappointing UK economic data. News that the UK economy contracted by 0.1% in April sent cable to its session low near $1.3385 in initial reaction, but the currency recovered swiftly to the session high near $1.3425 as the broader risk-on sentiment reasserted itself. Cable approached that $1.3425 level again near midday in New York and held firm, subsequently climbing to $1.3460 today—a six-day high and a testament to the strength of the risk rally. The next technical target for cable may reside in the $1.3480–$1.3500 area, where sellers may emerge if the risk appetite narrative falters.
The contraction in April GDP, though modest, raises questions about the resilience of the UK economy and may temper Bank of England rate-hiking expectations if subsequent data confirms a downtrend. Traders should remain alert to the potential for a shift in BoE communication, particularly if second-quarter growth data disappoints when released. The recovery in sterling today, despite the weak GDP print, underscores the extent to which currency markets are being driven by the global risk-on narrative and reduced safe-haven demand for the dollar rather than by UK-specific fundamentals.
China
The offshore yuan has consolidated through the early part of the week and subsequently strengthened, with the dollar sold to a marginally new three-year low near CNH6.7555 today. More significantly, the People’s Bank of China set the dollar’s daily fixing ahead of the weekend at a fresh three-year low of CNY6.8109, and maintained that dovish bias today with a fixing of CNY6.8088. This sequence of fixing decisions signals PBOC tolerance—or tacit encouragement—of yuan appreciation, consistent with Beijing’s broader policy objective of gradually internationalizing the currency and reducing dollar dependence in cross-border transactions.
The timing of the PBOC’s yuan-friendly fixing decisions coincides with the broader dollar weakness driven by the Iran deal narrative and risk-on sentiment, suggesting that Chinese policymakers are comfortable allowing the currency to appreciate in an environment of reduced geopolitical risk and lower commodity prices. However, traders should remain cognizant that the PBOC retains substantial discretion over the daily fixing and may adjust course if yuan strength becomes disruptive to export competitiveness or if capital outflow pressures intensify.
Tomorrow, China will release a comprehensive data package including retail sales, industrial production, fixed asset investment, unemployment figures, and house prices. This monthly data dump is critical for assessing the economy’s trajectory. Beijing reported first-quarter 2026 growth of 1.3% quarter-over-quarter, the fastest pace since Q4 2024, but underlying indicators suggest economic momentum may be waning. Market consensus anticipates that second-quarter growth could decelerate to near 1.0%, with the official figures due mid-July. Traders should prepare for potential volatility in USD/CNH and broader EM currencies if tomorrow’s data disappoints, as it could trigger a reassessment of global growth expectations and risk appetite.
Japan
The dollar consolidated against the yen ahead of the weekend, capped near JPY160.60 in the middle of last week before falling to approximately JPY159.60 on June 11 amid optimism over the Iran settlement. The greenback held above its 20-day moving average, which is currently positioned near JPY159.70 today, and has not settled below this average in a month—a testament to underlying yen weakness. The dollar recovered ahead of the weekend and has now settled above JPY160 for the seventh time in the past two weeks, establishing this level as a critical pivot point. Today, USD/JPY is trading in approximately a quarter-yen range around JPY160, where options representing about $960 million expire today, suggesting that large option positioning may be exerting technical influence on intraday moves.
Japan confirmed that industrial output rose in April for the first time in three months, a modest but positive development. Earlier today, tertiary industry activity, which encompasses the services sector, rose by 1.3%—also the first increase since January and notably twice as strong as the median forecast in Bloomberg’s survey had projected. These data suggest that the Japanese economy may be stabilizing after a period of weakness, though the gains remain tentative.
The Bank of Japan’s two-day monetary policy meeting concludes tomorrow, and the market has priced in high confidence of a 25 basis point rate hike, despite Governor Ueda’s recent hospitalization due to illness. The prospect of a BoE rate hike, coupled with the yen’s inherent weakness in a risk-on environment, creates an intriguing dynamic: higher Japanese rates would ordinarily support the yen, but the risk rally and lower US yields may offset that effect. Additionally, traders should factor in the possibility that a BoJ rate hike could paradoxically make material yen intervention more rather than less likely, as Japanese policymakers may seek to manage the currency’s volatility and prevent overshoots that could impair export competitiveness. JGB yields have fallen 10 basis points over the past week, with the 10-year yield among the worst performers in the G10, reflecting both the global risk-on sentiment and the market’s anticipation of a BoJ rate increase.
Canada
The Canadian dollar spent Friday’s session consolidating losses from the prior day’s sell-off, which had pushed the greenback to levels not seen since the end of November 2025. USD/CAD approached nearly CAD1.4025 before retreating below CAD1.40 ahead of the weekend. Today’s risk-on sentiment has extended the loonie’s recovery, with the greenback sold to almost CAD1.3950. Last Thursday’s range, approximately CAD1.3930–CAD1.4025, remains a critical technical reference point for both bulls and bears, and a close above or below this zone will likely determine the near-term directional bias.
The Canadian economic calendar today includes May housing starts and April manufacturing and wholesale sales data. These reports have historically had minimal impact on USD/CAD dynamics and carry only marginal implications for Bank of Canada monetary policy expectations. Traders should remain focused on the broader dollar weakness narrative and risk sentiment rather than anticipating material currency moves from these releases.
Australia
The Australian dollar posted what appeared to be a bullish key upside reversal on June 11, driven by the risk-on rally, though follow-through buying ahead of the weekend was limited to approximately 5/100 of a cent. Nevertheless, the consolidation pattern appears constructive from a technical perspective. Buying interest today has lifted the aussie to the lower end of a resistance band extending from $0.7090–$0.7120. A convincing move above this zone would negate the bearish head-and-shoulders pattern that has been tracked by technical analysts and could open the door to a retest of higher levels. Option positioning remains significant, with approximately A$1 billion in options at $0.7075 and another A$485 million at $0.7085 expiring today, suggesting that option-related technical flows may influence price action around these strikes.
The Reserve Bank of Australia convenes tomorrow, and market participants have little doubt that the central bank will leave policy unchanged following three rate hikes earlier in the year. Governor Bullock has acknowledged that these hikes have begun having the desired impact on inflation and demand, reducing the urgency for further tightening in the near term. The RBA’s hold decision is largely priced in, and traders should focus on forward guidance and commentary regarding the inflation trajectory to determine whether further tightening remains on the table for later in the year.
Emerging Markets
The risk-on environment has proven particularly supportive for Latin American currencies, with the Mexican peso rallying to its best level in nearly a month at the end of last week. The greenback was sold to MXN17.1770 and has retreated further to approximately MXN17.1575 today. In the previous week, USD/MXN had traded above MXN17.50 for the first time in a month, but the peso has since embarked on a five-day winning streak that matches the longest such streak since January. Five of the eight top-performing emerging market currencies last week hailed from Latin America, with the Mexican peso ranking eighth and the Colombian peso posting a stellar 3.3% gain—the strongest performance among EM currencies. The Colombian peso’s outperformance reflects the favorable market response to the first round of the country’s recent presidential election. The Colombian currency has reached levels not seen since early 2021, reflecting a sustained appreciation trend. Colombia’s central bank is scheduled to meet at the end of the month, and the swaps market is currently pricing in a 50 basis point rate hike, suggesting expectations for further monetary tightening.
The Indian rupee has traded with firmness ahead of the weekend, supported by lower oil prices and a smaller-than-expected rise in May consumer price inflation. Indian inflation rose to 3.93% in May from 3.48% in April, marking the seventh consecutive month of increases and continuing a trend that began before the Middle East conflict escalated. Aided by the tentative Iran-US agreement and the sharp decline in oil prices, the rupee rallied to its best level in over a month today. USD/INR gapped lower at the open and was sold to INR94.4525 before recovering and reaching the session high in late turnover near INR94.7740, ultimately settling around INR94.7160. The pre-weekend low had been INR94.9475, and the rupee’s relative strength reflects both the positive impact of lower commodity prices on India’s current account and the broad emerging market risk appetite.
Global Markets
Equities finished last week on a firm tone, though several of the largest bourses posted weekly declines. Japan, China, Hong Kong, South Korea, Taiwan, and Singapore all registered weekly losses despite Monday’s broader risk-on sentiment. Regional markets have turned firmer today, with several large Asia-Pacific bourses rallying more than 2%. Europe’s Stoxx 600 rose nearly 1.7% last week and is up 0.60% today, reflecting the continent’s participation in the global risk rally. The S&P 500 bottomed last Tuesday at its lowest level in a little more than a month and has since recovered to trade at three-day highs ahead of the weekend. US equity index futures are poised to gap higher at the open, suggesting that the risk rally will extend into North American trading.
Benchmark 10-year yields have fallen substantially over the past week, arguably dragged lower by the combination of lower oil prices feeding into inflation expectations and reduced geopolitical risk premiums. The 10-year Japanese Government Bond yield fell 10 basis points last week, with only UK, Italy, and Greek yields posting slightly larger declines. The 10-year US Treasury yield has declined a little more than 8 basis points over the week, and yields have fallen further today. The 10-year JGB yield is off almost 4.5 basis points, while European yields have mostly declined 4 to 5 basis points. The 10-year US Treasury is down 3 to 4 basis points to almost 4.44%, reflecting the market’s reassessment of inflation and growth dynamics in light of lower energy prices and reduced geopolitical risk.
Gold experienced a dramatic reversal of fortune, falling to almost $4,000 last week—completely unwinding the substantial rally that had carried the precious metal from late November lows to nearly $5,600 at the end of January. The magnitude of this decline underscores the extent to which gold had been driven by safe-haven demand and geopolitical risk premiums. While gold traded firmer ahead of the weekend and reached slightly above $4,245, it still posted a 2.5% weekly loss. However, the precious metal gapped higher today and has rallied to $4,345, suggesting that some buyers view current levels as attractive. Silver has also gapped higher today and is pushing above $70, with initial resistance identified around $72.50. The recovery in precious metals, despite the risk-on sentiment, may reflect some profit-taking on the short side and a recognition that even in a lower-risk environment, gold retains value as a portfolio diversifier.
Crude oil has come under intense selling pressure, with July WTI falling almost 3.5% ahead of the weekend to post a weekly loss of approximately 6.5%. The contract traded as low as $83.20 at the end of last week, a level not seen since April 21. Today’s session saw WTI gap lower and trade below $80 for the first time since April 17, reflecting the market’s conviction that a US-Iran settlement would reduce geopolitical risk premiums and potentially increase global oil supply. Brent crude has similarly retreated to two-month lows. The sharp decline in oil prices has broad implications for inflation expectations, currency valuations in oil-exporting nations, and the calculus surrounding central bank monetary policy across the developed world. Traders should monitor whether oil prices stabilize near current levels or continue lower as markets await more clarity on the terms of any US-Iran agreement.
