Iran announced on June 8 that its first wave of attacks on Israel since an April ceasefire had ended but warned it could resume if Israel continued strikes on Lebanon [1]. Following this, the US dollar retreated from a two-month high the same day [1]. The US Labor Department reported that non-farm payrolls increased by 172,000 jobs in May, exceeding economists’ expectations and strengthening the labor market [1]. Jonas Goltermann, Chief Markets Economist at Capital Economics, said the report "paints a picture of a US labour market that is strengthening despite the ongoing energy price shock" [1].
Investor sentiment grew cautiously optimistic about the chances of a US-Iran deal, but market focus remained on upcoming US inflation data for May to gauge Federal Reserve rate hike prospects [2]. Investors increased bets on the Fed raising interest rates twice this year by 25 basis points each, reacting both to the energy crisis and the robust labor market [1]. Sho Suzuki, Market Analyst at Matsui Securities, noted, "If inflation accelerates this time, expectations for further rate hikes are likely to strengthen, pushing the dollar higher" [2].
On June 10, Iran launched missile and drone attacks on US bases in Jordan, Kuwait, and Bahrain in retaliation for US strikes on Iranian targets, escalating tensions in the region [2]. The US dollar index held steady around 99.97 that day amid the ongoing unrest and ahead of the US May inflation report [2]. Concurrently, US President Donald Trump criticized Iran’s negotiating stance, stating Iran took too long to negotiate a deal and would "have to pay the price" [2]. Dominic Bunning, Head of G10 FX Strategy at Nomura, remarked that despite short-term tensions, "overall sentiment ... is that we’re still closer to some kind of deal or agreement than further away" [2].
In addition to US events, the Bank of Japan was set to announce its rate decision on June 16. The expected rate hike was mostly priced in, limiting any near-term upside for the yen absent hawkish comments. Tony Sycamore, Market Analyst at IG, said, "It will take some hawkish commentary from governor Kazuo Ueda that signals the BOJ could bring forward its next hike from December to September" [2].
The markets remain focused on the US inflation data to be released after June 10, which will play a key role in determining the pace and scale of Federal Reserve interest rate increases [2].
