Forex daily rundown: hawkish Fed lifts dollar amid geopolitical shifts

The US Dollar climbs to its highest in over a year on a hawkish Federal Reserve stance, overshadowing peace efforts and influencing commodity markets, while Japan's central bank hints at further rate hikes.

Market overview

Global markets are navigating a complex landscape of shifting geopolitical dynamics and central bank expectations. Our MRS stands at 64, while the CTS is 82, indicating strong carry trade interest. On a short-term, intraday basis (Asian session), our strength gauge currently reads the Swiss Franc (CHF) as the strongest and the US Dollar (USD) as the weakest — a normal pullback after the dollar’s powerful week-long rally, not a reversal of it.

Dollar dynamics and geopolitics

The US Dollar has been a central focus, touching its highest level in over a year. According to Investing.com and FXStreet reports, this rally is primarily driven by a hawkish Federal Reserve, which overshadowed an initial peace deal between the US and Iran.

• The dollar also rose following news that US Vice President JD Vance cancelled a trip to Switzerland for talks with Iran.
• Despite the US and Iran signing an initial agreement to end their conflict and the US ending its naval blockade, the hawkish Fed stance provided strong support for the dollar.
• The USD/CHF pair reached a new high, surpassing 0.8050.
• Gold came under pressure, falling to near $4,200, as the Fed's hawkish posture countered support from the US-Iran peace agreement.

Asia-Pacific insights

Japan's currency and central bank actions are drawing significant attention.

• The Japanese Yen recovered from a two-year low against the dollar, supported by expectations of Bank of Japan (BoJ) rate hikes despite weaker domestic inflation data.
• BoJ's Himino indicated that the central bank is likely to continue raising rates, depending on economic, price, and financial trends.
• However, BoJ minutes revealed members want more time to assess the impact of Middle East events on Japan's economy and prices.
• Japan’s national Consumer Price Index (CPI) rose 1.5% year-over-year in May, just below the 1.6% consensus, with core CPI in line with expectations.
• Japanese official Katayama reiterated readiness to act against speculative currency movements.
• In New Zealand, the May trade balance was due later in the session (forecast: NZD 875 million surplus).
• Markets in Hong Kong and China are closed today for a holiday.

European currencies and commodities

European currencies showed mixed reactions to global developments and commodity price movements.

• The Euro gained, rising above 1.1450, following reports of the initial US-Iran agreement.
• The British Pound edged lower, with cheaper crude oil prices masking inflation concerns, according to FXStreet. UK consumer confidence figures came in broadly steady.
• Crude oil prices saw volatility; oil initially rose on the news of Vance's cancelled trip but WTI later fell to near $75 as shipping conditions improved in the Strait of Hormuz.
• The Canadian Dollar fell as oil prices declined.

Key events today

• GBP · Retail Sales m/m · Forecast 0.5% vs Previous -1.3% (SCHEDULED)