The euro weakened against a basket of major global currencies in European trading on Tuesday, pulling back from a two-week high against the US dollar as traders engaged in profit-taking and corrective selling, while the US currency recovered ahead of the Federal Reserve's policy meeting.

With the European Central Bank maintaining a data-dependent approach and avoiding any commitment to a specific policy path, investors are awaiting additional economic data from the eurozone to reassess expectations for future interest rate moves.

Price action

• The euro fell more than 0.1% against the dollar to $1.1576, down from an opening level of $1.1590, after reaching an intraday high of $1.1595.

• The single currency closed Monday up 0.2% against the dollar and touched a two-week high of $1.1622 after the United States and Iran reached an agreement to end the conflict in the Middle East.

US dollar

The US Dollar Index rose 0.1% on Tuesday, rebounding from a two-week low as the greenback recovered against a basket of major and minor currencies.

In addition to bargain buying, the dollar's recovery comes as markets seek greater clarity on the preliminary peace agreement between the United States and Iran.

The Federal Reserve begins its latest monetary policy meeting later today, with the policy decision due on Wednesday. Markets broadly expect interest rates to remain unchanged for a fourth consecutive meeting.

Oil prices

Global oil prices fell more than 0.5% on Tuesday, extending losses for a fourth straight session and remaining near three-month lows as concerns over Middle East supply disruptions continued to ease following the reopening of the Strait of Hormuz.

US-Iran agreement

• The United States and Iran have electronically signed a preliminary peace agreement, though full details remain unclear.

• Reports indicate the agreement includes a 60-day extension of the ceasefire and intensive negotiations over Iran's nuclear program.

• President Donald Trump announced the lifting of the US naval blockade on Iranian ports and the full reopening of the Strait of Hormuz to international shipping without transit fees.

• Mediators have scheduled Friday, June 19, 2026, for the formal signing ceremony between US and Iranian delegations in Switzerland.

• Media reports suggest the agreement falls short of Israel's wartime objectives.

• Prime Minister Benjamin Netanyahu and President Donald Trump appear headed toward a policy clash following the US-Iran agreement, particularly regarding potential restrictions on Israeli operations in southern Lebanon.

• Iranian Foreign Minister Abbas Araghchi has called on Israel to halt military operations in Lebanon.

European interest rate outlook

• Reports suggest the European Central Bank is considering pausing policy normalization in July if energy prices remain near current levels.

• Following the decline in oil prices, money markets have reduced the probability of a 25-basis-point ECB rate hike in July from 50% to 30%.

• Expectations for a 25-basis-point rate increase in September have also fallen from 70% to 50%.

• Investors are now awaiting additional eurozone inflation, labor market, and wage data to reassess the outlook for European interest rates.

The Japanese yen strengthened against a basket of major and minor currencies in Asian trading on Tuesday, putting it on track for its first gain in three sessions against the US dollar after the Bank of Japan raised interest rates to their highest level in 31 years, marking another milestone in the country's monetary policy normalization process.

The decision was approved by a 7-1 vote. Governor Kazuo Ueda did not attend the meeting or participate in the vote as he remains hospitalized for treatment. Deputy Governor Shinichi Uchida is expected to explain the decision and the central bank’s outlook for the economy and inflation during a press conference later today.

Price action

• The US dollar fell about 0.2% against the yen to ¥160.05, from an opening level of ¥160.32, after reaching an intraday high of ¥160.36.

• The yen ended Monday's session down 0.1% against the dollar, marking its second consecutive daily loss.

Bank of Japan

In line with broad market expectations, the Bank of Japan raised its benchmark interest rate by 25 basis points on Tuesday to 1.0%, the highest level since 1995, in another significant step toward normalizing monetary policy in the world's fourth-largest economy.

Bank of Japan raises rates to highest level since 1995

The central bank said the decision passed by a 7-1 majority, with board member Toyoichiro Asada opposing the move and calling for rates to remain unchanged at 0.75%.

The meeting was held in the absence of Governor Kazuo Ueda, who is undergoing treatment for hepatitis. Ueda submitted written views but did not participate in the vote, while Deputy Governor Shinichi Uchida chaired the meeting.

In its updated monetary policy statement, the Bank of Japan said that the persistent rise in crude oil prices is increasingly feeding through into corporate goods and services prices, raising the risk that inflationary pressures will spread more broadly to consumers.

The bank added that rising medium- and long-term inflation expectations increase the risk of core inflation moving away from desired levels, requiring close monitoring of price developments and a readiness to implement further monetary tightening if necessary to maintain price stability and achieve its inflation target sustainably.

Interest rate outlook

• Following the meeting, market pricing for another 25-basis-point rate increase at the Bank of Japan's July meeting remained below 50%.

• Investors are now awaiting additional data on inflation, wages, and unemployment to reassess the likelihood of further policy tightening.

Focus on Shinichi Uchida

Deputy Governor Shinichi Uchida is scheduled to speak later today regarding the outcome of the policy meeting. Markets will closely watch his remarks for fresh guidance on the future pace of policy normalization and the possibility of another interest rate increase later this year.

The Canadian dollar strengthened against its US counterpart on Monday as a preliminary peace agreement between the United States and Iran boosted global investor sentiment. However, gains remained limited ahead of this week's Federal Reserve interest rate decision.

The Canadian dollar, commonly known as the loonie, rose 0.1% to C$1.3980 per US dollar, or 71.53 US cents, after trading within a range of C$1.3951 to C$1.3992. The currency had touched a seven-month low of C$1.4023 last Thursday.

Global equity and bond markets rallied while oil prices declined, as investors bet that the agreement could ease inflationary pressures worldwide and reduce the need for further interest rate increases.

Analysts at Monex Europe said in a research note:

“Improving risk appetite is likely to be the dominant short-term driver following the signing of the agreement. However, with markets still pricing in the possibility of a hawkish Federal Reserve stance on Wednesday, upside for the Canadian dollar may remain limited.”

Markets are also awaiting comments from Kevin Warsh, who is expected to outline his economic outlook and views on interest rates following the conclusion of the Federal Reserve's June 16-17 policy meeting.

Lower oil prices and bearish positioning cap gains

Data released Friday by the Commodity Futures Trading Commission showed that speculators increased bearish bets against the Canadian dollar to their highest level since December.

Net non-commercial short positions in the currency rose to 119,999 contracts as of June 9, up from 94,111 contracts a week earlier.

Meanwhile, crude oil prices—one of Canada's most important exports—fell 5.5% to $80.23 per barrel amid expectations that the Strait of Hormuz will soon reopen.

On the domestic front, April data showed Canadian manufacturing sales rose 4.2% from March, while wholesale trade increased 0.6%.

Canadian housing starts declined 6% in May compared with the previous month, though the drop was less severe than economists had expected.

In the bond market, Canadian government bond yields were mixed across a steeper yield curve.

The yield on Canada's two-year government bond fell 2.6 basis points to 2.734%, after earlier touching 2.702%, its lowest level since March 18.

Oil prices fell about 6% on Monday after US President Donald Trump announced that the United States had finalized an agreement with Iran to reopen the Strait of Hormuz.

US crude oil futures dropped below $80 per barrel for the first time since March during early trading before settling around 5.9% lower at $79.90 per barrel by 10:41 a.m. ET. Global benchmark Brent crude also declined about 5.5% to $82.57 per barrel.

In a post on Truth Social, Trump declared: “The agreement with the Islamic Republic of Iran is now complete.”

He added that the Strait of Hormuz would reopen without transit fees and that the United States would end its naval blockade of Iran.

“Ships of the world, start your engines... let the oil flow!” Trump wrote.

In a later post, he clarified that the strait would reopen on Friday, the same day the formal peace agreement is scheduled to be signed in Switzerland.

“With the strait opening upon the signing of the agreement on Friday, and for mine-clearing purposes, oil will once again flow in both directions for the benefit of the region and the world,” Trump added.

Disagreements emerge over key details

Early signs of disagreement have already emerged between Washington and Tehran regarding the interpretation of the agreement.

Iranian state-affiliated media reported that passage through the Strait of Hormuz would remain toll-free for only 60 days, after which Iran and Oman would assume responsibility for managing the waterway, according to Tasnim News Agency.

By contrast, US Vice President JD Vance told CNBC that Washington expects the strait to remain open without transit fees over the long term.

Before tanker traffic collapsed in early March due to Iranian attacks, roughly 20% of global oil supplies passed through the Strait of Hormuz. The disruption triggered what many analysts described as the largest oil supply shock in modern history.

Shipping industry remains cautious

Global shipping association BIMCO warned that statements from both the United States and Iran remain vague and do not provide sufficient clarity regarding timing or safe navigation routes through the strait.

Jakob Larsen, Head of Safety and Security at BIMCO, said:

“Given the lack of details and a history of overly optimistic promises, we believe the security situation for the shipping industry remains highly volatile, and we still consider the resumption of vessel transits at this stage to be extremely risky.”

Larsen added that naval mines remain one of the biggest concerns for commercial shipping.

Earlier this month, US Secretary of State Marco Rubio told Congress that Iran had deployed naval mines across parts of the Strait of Hormuz, raising further questions about how quickly normal shipping operations can resume.