The euro advanced in European trading on Friday against a basket of global currencies, extending gains for a second consecutive session against the US dollar as risk sentiment improved and investors maintained hopes that the United States and Iran could reach a peace agreement to end the conflict in the Middle East.

Global financial markets are now awaiting the release of the US May nonfarm payrolls report later today, which is expected to provide further clues about the Federal Reserve’s interest rate path this year.

Price Overview

• EUR/USD today: The euro rose by around 0.2% against the dollar to $1.1628, up from an opening level of $1.1610, after touching an intraday low of $1.1608.

• The euro closed Thursday up 0.1% against the dollar, recording its first gain in four sessions following the announcement of a ceasefire between Hezbollah and Israel through US mediation.

US Dollar

The US Dollar Index fell about 0.1% on Friday, extending losses for a second straight session and moving further away from its two-month high, reflecting continued weakness in the US currency against a basket of major global peers.

The dollar remains under pressure as risk appetite improves moderately, supported by investor optimism that the United States and Iran are nearing a peace agreement that could bring an end to the three-month conflict.

Later today, markets will focus on the US May employment report, which is expected to provide stronger evidence regarding the Federal Reserve’s interest rate outlook, particularly given elevated market pricing for a 25-basis-point rate hike in December.

Global Oil Prices

Oil prices fell by more than 0.5% on Friday, extending losses for a second consecutive day amid growing optimism that the United States and Iran could reach a peace agreement that includes reopening the Strait of Hormuz.

Latest Developments in the Iran Conflict

• Hezbollah’s leader rejected the proposed ceasefire agreement in Lebanon.

• The rejection continues to cloud the outlook for Middle East stability and efforts to end the Iran conflict.

• The Lebanon ceasefire remains linked to broader negotiations between the United States and Iran.

• US President Donald Trump said talks with Iran are progressing well and suggested that meaningful developments could emerge by the end of this week.

• Trump added that he could meet Iran’s Supreme Leader “if an agreement is reached.”

European Interest Rates

• Data released this week showed that inflation in the eurozone accelerated last month, driven by higher energy and services prices as a consequence 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%.

• Sources told Reuters that the ECB is highly likely to raise interest rates in June, given inflation projections that are moving toward a less favorable scenario.

The Japanese yen rose in Asian trading on Friday against a basket of major and minor currencies, extending its recovery from a five-week low against the US dollar. Despite the rebound, the Japanese currency remains on track to post another weekly loss, weighed down by escalating geopolitical tensions in the Middle East.

Data released in Tokyo showed stronger-than-expected wage growth in Japan, adding to inflationary pressures on policymakers at the Bank of Japan and strengthening expectations of an interest rate hike later this month.

Price Overview

• USD/JPY today: The dollar fell by around 0.1% against the yen to ¥159.90, from an opening level of ¥160.01, after reaching an intraday high of ¥160.02.

• The yen closed Thursday up about 0.1% against the dollar, recording its first daily gain in four sessions as part of a recovery from a five-week low of ¥160.09.

Weekly Performance

So far this week, which officially concludes with Friday’s settlement, the yen is down approximately 0.5% against the US dollar and is on course for its fourth consecutive weekly decline.

The losses have been driven by renewed military tensions in the Gulf region, which have reduced optimism about the success of peace negotiations between the United States and Iran.

Japanese Wages

Japan’s Ministry of Labor reported on Friday that total monthly cash earnings, along with a separate measure of full-time wages, increased 3.5% year-over-year in April, exceeding expectations of a 3.2% rise. Wage growth had previously reached 3.1% in March.

Stronger wage growth is widely viewed as paving the way for further price increases and faster inflation in the months ahead, increasing pressure on Bank of Japan policymakers and reinforcing expectations of a rate hike in June.

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 added that upside risks to prices appear greater than downside risks and could materialize faster than previously anticipated.

• Following the wage data and Ueda’s comments, market pricing for a 25-basis-point rate hike at the June meeting rose from 65% to 85%.

• The Bank of Japan is scheduled to meet on June 15–16 to assess the appropriate monetary policy stance for the world’s fourth-largest economy.

The ¥160 Threshold

Japanese authorities continue to closely monitor currency movements, particularly as the yen hovers around the critical ¥160-per-dollar level, which markets view as a potential trigger for official intervention.

According to Reuters sources, Tokyo intervened several times in late April and early May to support the currency, although the resulting strength proved short-lived. At that time, the exchange rate weakened to ¥159.25 per dollar, its lowest level since April 30.

Japanese officials have repeatedly warned against excessive currency volatility and indicated that decisive action could be taken against disorderly market moves.

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

US Dollar

The US Dollar Index fell about 0.1% on Friday, extending losses for a second consecutive session and moving further away from its two-month high, reflecting continued weakness in the US currency against a basket of global peers.

The dollar has come under pressure as risk appetite improves modestly and investors maintain hopes that the United States and Iran are nearing a peace agreement that could bring an end to the three-month conflict.

Latest Developments in the Iran Conflict

• Hezbollah’s leader rejected the proposed ceasefire agreement in Lebanon.

• The rejection has cast a shadow over Middle East stability and prospects for ending the Iran conflict.

• The Lebanon ceasefire remains linked to broader negotiations between the United States and Iran.

• US President Donald Trump said talks with Iran are progressing well and hinted that meaningful developments could emerge by the end of this week.

• Trump also stated that he could meet Iran’s Supreme Leader “if an agreement is reached.”

Most cryptocurrencies declined during Thursday trading despite signs of easing tensions in the Middle East, with Ethereum extending its losses and falling below the key psychological level of $1,800.

As of 21:08 GMT, Ethereum was down 1.5% on CoinMarketCap, trading at $1,771.

Iran conflict remains a key focus

Israel and Lebanon announced late Wednesday that they had agreed to implement a ceasefire, raising hopes for a broader agreement between Washington and Tehran. Iran had previously linked any potential deal, at least in part, to an end to the fighting between Israel and the Iran-backed Hezbollah movement in Lebanon.

John Evans, analyst at PVM Oil Associates, said Iran continues to insist on ending what it describes as Israeli aggression against Hezbollah in Lebanon, adding that there are already signs of a potential breakthrough.

Lebanese President Joseph Aoun said on Thursday that the ceasefire would take effect within 24 hours once all parties involved approve it.

US President Donald Trump also suggested on Wednesday that progress in negotiations with Iran could be achieved as soon as this weekend.

Iranian Foreign Minister Abbas Araghchi stated on Wednesday that communication channels between Tehran and Washington remain open, although he acknowledged that no meaningful progress has yet been made, adding that both sides are still reviewing the exchanged draft proposals.

Meanwhile, the Republican-controlled US House of Representatives approved a resolution on Wednesday aimed at preventing Trump from continuing the war against Iran. For the measure to take effect, it must still pass the Senate and secure a two-thirds majority in both chambers to override an expected presidential veto.

Economic data

On the economic front, a survey released on Wednesday showed that the prices-paid component of the US services sector rose to its highest level in nearly four years last month, reinforcing expectations among economists that the Federal Reserve will keep interest rates unchanged through next year.

Corn and soybean prices on the Chicago Board of Trade fell again on Thursday, hitting multi-month lows as favorable weather conditions across US growing regions continued to fuel selling pressure, according to market analysts.

Wheat also edged lower as improved rainfall across the US Plains and the start of the harvest season added to supply-side pressure.

The most-active CBOT corn contract fell 1.1% to $4.26¾ per bushel by 10:57 GMT, after touching its lowest level since February 20 for the second consecutive session.

Soybeans declined 0.6% to $11.47½ per bushel after reaching their weakest level since April 8, while wheat slipped 0.1% to $5.86½ per bushel after hitting its lowest level since April 14. All three contracts were on track for a fifth consecutive daily decline.

Andrey Sizov, head of agricultural consultancy SovEcon, said that broadly favorable expectations for US corn and soybean crops have encouraged investment funds to increase selling activity after building massive long positions in major crops earlier this year, positions that had approached record levels.

Sizov added that “Chinese silence” regarding purchases of US crops is also weighing on prices from the demand side.

Washington previously announced that Beijing had pledged during a mid-May summit to purchase $17 billion worth of US agricultural products annually, in addition to an earlier commitment to import soybeans. China confirmed that it had agreed to expand agricultural trade but provided no additional details.

Market participants are awaiting the US Department of Agriculture’s weekly export sales report on Thursday for fresh indications of demand trends.

Investors are also monitoring the discovery of a new case of New World screwworm infestation—a flesh-eating parasite—in a calf in Texas. The development could have implications for the US cattle herd and, consequently, feed demand.

Meanwhile, lower oil prices on Thursday, following the Israel-Lebanon ceasefire agreement and renewed hopes for a broader Middle East peace deal, removed one source of support for crops such as corn and soybean oil that are used in biofuel production.

However, grain markets have become less sensitive to energy price fluctuations in recent weeks, as seasonal crop-supply factors have once again become the dominant market driver.

In the wheat market, attention remained focused on abundant global supplies, as the US winter wheat harvest gets underway and production expectations continue to improve in Russia, the world's largest wheat exporter.