The dollar index (DXY00) is up +0.03% on support from today’s +3.8 bp rise in the 10-year T-note yield, which supported the dollar’s interest rate differentials. However, there was some downward pressure from reduced safe-haven demand on hopes for a near-term US-Iran agreement to end military hostilities and reopen the Strait of Hormuz.
Reports are circulating that a preliminary US-Iran peace agreement could be signed as early as this weekend, ending the military hostilities, reopening the Strait of Hormuz, and ending the US blockade on Iran and its oil exports. Negotiations would then begin on the more intractable issues, such as sanctions against Iran, the release of $24 billion of frozen Iranian assets, and the resolution of Iranian nuclear issues. However, Iran claimed it would continue to exert control over the Strait of Hormuz even after a new ceasefire agreement.
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The dollar saw support from today’s news that the University of Michigan’s June US Consumer Sentiment Index rose +4.1 to 48.9, which was stronger than expectations for a rise to 46.0. On the dovish side for the dollar, however, the University of Michigan’s June 1-year inflation expectations rate eased to +4.6% from +4.8% in May, and was weaker than expectations of +4.9%. The June 5-10 year inflation expectations rate eased to +3.4% from +3.9% in May, weaker than expectations of +3.8%.
The swaps markets are discounting the odds at zero for a +25 bp rate cut hike at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) today is down -0.04% on dollar strength. The euro has underlying support after the ECB raised its deposit rate by +25 bp on Thursday, which supported the euro’s interest rate differentials. However, the ECB cut its 2026 Eurozone GDP estimate to +0.8% from a previous estimate of +0.9% and raised its 2026 Eurozone inflation ex-food and energy forecast to +2.5% from a previous forecast of +2.3%.
The markets are discounting a +37% chance for a +25 bp rate hike by the ECB at its next policy meeting on July 23.
USD/JPY (^USDJPY) is up +0.16% on dollar strength. The yen has underlying support from hopes for an end to the US-Iran conflict, which would allow oil prices to decline and support Japan’s economy, which is heavily dependent on imported oil and gas. In addition, the yen has support from expectations that the BOJ will raise interest rates at next week’s policy meeting.
