The euro rose against a basket of global currencies in European trading on Thursday and is on track to post its first gain in four sessions against the US dollar, supported by improving risk sentiment as hopes grow for a peace agreement that could end the conflict in the Middle East, particularly following the announcement of a US-brokered ceasefire between Hezbollah and Israel.

Expectations for a European Central Bank rate hike later this month have also strengthened, especially after recent data from the eurozone showed inflation accelerated last month, driven by higher energy and services prices.

Price overview

• The euro rose about 0.15% against the dollar to $1.1613, up from an opening level of $1.1597. The session low was $1.1595.

• The euro ended Wednesday down 0.3% against the dollar, marking its third consecutive daily decline, amid military exchanges between the United States and Iran and Iranian attacks targeting Kuwait and Bahrain.

US dollar

The US Dollar Index fell around 0.15% on Thursday, pulling back from a two-month high of 99.55 and heading toward its first loss in four sessions, reflecting a decline in the US currency against a basket of global currencies.

In addition to profit-taking, the dollar weakened as risk appetite improved following news that US mediation had successfully secured a ceasefire agreement between Hezbollah and Israel.

Global oil prices

Global oil prices fell roughly 1.5% on Thursday, retreating from their highest levels in nearly two weeks and heading toward their first daily loss in four sessions.

The decline comes amid growing optimism that the United States and Iran could reach a broader peace agreement that would include reopening the Strait of Hormuz.

Iran war developments

• The Trump administration announced late Wednesday that Israel and Lebanon had agreed to implement a ceasefire to end hostilities, boosting hopes for a wider agreement to bring the Iran-related conflict to an end.

• Trump said Iran had agreed to abandon nuclear weapons, although he cautioned that its position could still change. He also stated that the Strait of Hormuz would reopen “immediately” once Iran signs the agreement memorandum.

• The Republican-controlled US House of Representatives approved a resolution on Wednesday aimed at preventing President Donald Trump from continuing the war against Iran.

European interest rates

• Data released this week showed that eurozone inflation accelerated last month, driven by rising energy and services prices linked to the impact of the Iran conflict.

• Following those figures, money markets increased the probability of a 25-basis-point European Central Bank rate hike in June from 90% to 95%.

• Reuters sources indicated that the ECB is highly likely to raise interest rates in June, given inflation expectations that are moving toward an undesirable scenario.

The Japanese yen rose against a basket of major and minor currencies in Asian trading on Thursday, beginning a recovery from a five-week low against the US dollar and heading toward its first gain in four sessions. The move was supported by bargain buying after the currency slipped into a range widely viewed as a potential trigger for Japanese authorities to intervene near the ¥160 level.

Meanwhile, the US dollar retreated from its highest level in two months, while global oil prices declined as hopes grew for a peace agreement between the United States and Iran, particularly after the announcement of a US-brokered ceasefire between Hezbollah and Israel.

Price overview

• The dollar fell 0.15% against the yen to ¥159.83, down from an opening level of ¥160.06, after reaching an intraday high of ¥160.08.

• The yen ended Wednesday down 0.1% against the dollar, marking its third consecutive daily loss, and touched a five-week low of ¥160.09 amid escalating military tensions in the Gulf region.

The ¥160 threshold

Japanese authorities continue to closely monitor currency market movements, particularly as the yen trades around the key ¥160-per-dollar level, which has long been viewed as a threshold that could prompt renewed intervention to support the currency.

Reuters previously reported that Tokyo intervened several times in late April and early May to halt the yen’s decline. However, the currency’s recovery proved short-lived. At the time, the exchange rate reached ¥159.25 per dollar, its weakest level since April 30.

Japanese officials have warned against excessive volatility in the yen and indicated that authorities could take decisive action against disorderly market movements.

Finance Minister Satsuki Katayama reiterated that the government is “prepared to take appropriate action” if currency markets experience excessive or speculative moves.

Japanese interest rates

• Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank needs to continue raising interest rates in response to economic and inflation developments.

• Ueda noted that upside risks to prices appear greater than downside risks and could materialize sooner than expected.

• Following those comments, market pricing for a 25-basis-point rate hike at the Bank of Japan’s June meeting rose from 65% to 80%.

• The Bank of Japan is scheduled to meet on June 15–16 to review monetary policy and assess developments in the world’s fourth-largest economy.

US dollar

The US Dollar Index fell around 0.15% on Thursday, pulling back from a two-month high of 99.55 and heading toward its first loss in four sessions, reflecting weaker performance against a basket of major currencies.

Beyond profit-taking, the dollar came under pressure as risk appetite improved following the announcement that US mediation had successfully secured a ceasefire agreement between Hezbollah and Israel.

Global oil prices

Global oil prices declined roughly 1.5% on Thursday, moving away from their highest levels in nearly two weeks and heading toward their first daily loss in four sessions.

The decline was driven by growing optimism that the United States and Iran could reach a peace agreement that would include reopening the Strait of Hormuz.

Iran war developments

• The Trump administration announced late Wednesday that Israel and Lebanon had agreed to implement a ceasefire to end hostilities, boosting hopes for a broader agreement to end the Iran-related conflict.

• Trump stated that Iran had agreed to abandon nuclear weapons, while cautioning that its position could still change. He also said the Strait of Hormuz would reopen “immediately” once Iran signs the agreement memorandum.

• The Republican-controlled US House of Representatives approved a resolution on Wednesday aimed at preventing President Donald Trump from continuing the war against Iran.

US stocks retreated on Wednesday, pulling back from record highs as escalating tensions in the Middle East and rising crude oil prices fueled inflation concerns and prompted investors to take profits.

Market performance

The Dow Jones Industrial Average fell 620.72 points, or 1.21%, to close at 50,687.07. The S&P 500 declined 56.06 points, or 0.74%, to 7,553.72, while the Nasdaq Composite dropped 239.92 points, or 0.89%, to 26,853.98.

All three major US indexes finished in negative territory, weighed down by losses in the financial and technology sectors. The Russell 2000 small-cap index underperformed its large-cap counterparts.

In contrast, the Philadelphia Semiconductor Index gained 1.4%, signaling continued enthusiasm surrounding artificial intelligence. However, six of the so-called “Magnificent Seven” AI-related stocks ended lower, with Meta Platforms the only gainer, rising 4.2%.

Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, said AI stocks are trading in a world of their own, largely ignoring macroeconomic and geopolitical risks within certain limits. He added that investors continue to favor these stocks, especially on days when the broader market appears less attractive.

The software and services index fell 4% after facing pressure in recent months amid concerns about the impact of artificial intelligence on the sector.

Middle East tensions

Tensions in the Middle East intensified as the United States and Iran exchanged a new round of airstrikes, testing an already fragile ceasefire.

Oil prices rose, raising concerns that higher energy costs could evolve into a broader and more persistent inflationary wave.

Bill Northey, chief investment officer at US Bank Wealth Management in Montana, said the market remains caught between strong US economic fundamentals and concerns that a prolonged Middle East conflict could create downside risks.

He added that the key factor for inflation expectations is the duration of the Strait of Hormuz closure, noting that a prolonged disruption would reduce the likelihood of Federal Reserve rate cuts in 2026.

Financial markets are now pricing in a 41.1% probability of a Federal Reserve rate hike following the December meeting, up from just 9.1% a month ago, according to CME’s FedWatch Tool.

Meanwhile, New York Federal Reserve President John Williams reiterated that the central bank does not need to adjust interest rates despite upside inflation risks, arguing that monetary policy remains “in the right place.”

Economic data showed that the US labor market remains stable and the services sector continues to expand. However, input costs stayed elevated, while business spending plans appeared subdued amid rising energy prices and ongoing geopolitical uncertainty.

The Federal Reserve’s Beige Book also indicated that economic activity accelerated in recent weeks, while employment remained largely stable. However, the impact of higher energy prices linked to the war was described as widespread.

Among the S&P 500’s eleven major sectors, technology and financials posted the steepest declines, while energy stocks outperformed thanks to higher oil prices.

In the semiconductor sector, shares of Marvell, Intel, Qualcomm, and Sandisk gained between 3.7% and 6.7%.

Broadcom, however, fell 4.5% in after-hours trading following the release of its earnings results.

GameStop surged 6% after the original meme-stock company reported higher quarterly revenue and announced a $2 billion share repurchase program.

At the same time, sources told Reuters on Tuesday that Elon Musk’s SpaceX plans to price its initial public offering at $135 per share, aiming to raise a record $75 billion.

The S&P 500 recorded 33 new 52-week highs and 19 new lows, while the Nasdaq posted 90 new highs and 137 new lows.

Trading volume on US exchanges totaled 19.81 billion shares, compared with an average of 20.12 billion shares over the previous 20 full trading sessions.

Most cryptocurrencies declined on Wednesday as tensions intensified in the Middle East and investors awaited key US economic data that could strengthen expectations of a Federal Reserve rate hike rather than a rate cut, amid inflationary pressures linked to the ongoing conflict.

As of 21:33 GMT, Ethereum was down 5.9% on CoinMarketCap, trading at $1,801.4.

Middle East developments

Iran launched ballistic missiles toward neighboring countries in the region, including Kuwait and Bahrain, resulting in one death and dozens of injuries, according to Kuwaiti authorities and state media. Meanwhile, US forces carried out strikes on Iran’s Qeshm Island.

Bob Yawger, director of energy futures at Mizuho, said the prospects for a ceasefire appear to be fading, adding that the current trajectory points toward further deterioration.

US President Donald Trump stated that negotiations are still ongoing. However, Iran’s semi-official Tasnim News Agency reported on Wednesday that Tehran has not responded to the United States in recent days and that indirect communications through mediators have been suspended until Iran’s conditions regarding a halt to fighting in Lebanon are met.

Israel continues its largest military incursion into Lebanon in 25 years, in a conflict that has been ongoing since March 2, when Hezbollah opened fire in support of Iran.

In a podcast interview published Wednesday, Trump said Iran had agreed not to possess nuclear weapons and that Supreme Leader Ayatollah Mojtaba Khamenei is participating in the negotiations.

The Fed and inflation

Federal Reserve Chair Kevin Warsh pledged on Tuesday to follow the “best traditions of the Federal Reserve” in his opening remarks at the start of his four-year term, while also promising a comprehensive review of potential reforms going forward.

Meanwhile, Cleveland Fed President Beth Hammack said the US central bank may soon need to raise interest rates if already elevated inflationary pressures continue to intensify.

Markets are also focused on Friday’s US nonfarm payrolls report for May, which could provide further clues about the future direction of Federal Reserve monetary policy.

The ADP National Employment Report showed that US private-sector employment increased by more than expected in May.