The euro rose in European trading on Thursday against a basket of global currencies, extending its recovery for a second straight session from a six-week low against the US dollar, supported by continued bargain buying and easing demand for the US currency as a safe haven amid optimism over a potential peace agreement between the United States and Iran.

Investors are now awaiting a series of economic releases later today covering the main sectors of the European economy for May, as markets continue to reprice rising expectations that the European Central Bank could raise interest rates at its June meeting.

Price Overview

• Euro exchange rate today: The euro rose by around 0.1% against the US dollar to $1.1635, from the session opening level at $1.1624, after touching an intraday low of $1.1616.

• The euro ended Wednesday’s session up around 0.2% against the dollar after earlier falling to a six-week low of $1.1583.

• In addition to bargain buying at lower levels, the euro gained alongside improving risk appetite in global markets following positive remarks regarding US-Iran negotiations.

US dollar

The US Dollar Index fell by around 0.1% on Thursday, extending losses for a second consecutive session and moving further away from one-and-a-half-month highs, reflecting continued weakness in the US currency against a basket of major and minor currencies.

Beyond profit-taking activity, the dollar weakened as hopes increased that Washington is nearing an agreement with Tehran to end the war in the Middle East.

Iran war developments

• Trump: The United States is in the final stages of negotiations with Iran.

• Trump said he is willing to wait a few more days for the “right answer” regarding a peace agreement with Iran.

• Iran’s Foreign Ministry officially announced that it is currently reviewing the latest responses and proposals received from Washington through the Pakistani mediator.

• Sources: A new round of peace talks between the United States and Iran will be held in Islamabad after the Hajj season.

• Pakistan’s army chief may visit Iran on Thursday to announce the final wording of the agreement.

European interest rates

• Sources: The European Central Bank is highly likely to raise interest rates in June due to inflation expectations moving toward an undesirable scenario.

• Money markets are currently pricing in more than a 70% probability of a 25 basis point ECB rate hike at the June meeting.

• Investors are awaiting a series of economic reports later today on the key sectors of the European economy during May in order to reassess those expectations.

The Australian dollar weakened broadly in Asian trading on Thursday against a basket of global currencies, resuming losses after a temporary rebound against its US counterpart, and approaching a five-week low following weak Australian labor market data.

The data showed unemployment rising to its highest level in four and a half years, signaling that Australia’s labor market is beginning to feel the impact of the Iran war, a development that could encourage the Reserve Bank of Australia to remain cautious and leave interest rates unchanged in the near term.

Price Overview

• Australian dollar exchange rate today: The Australian dollar fell by around 0.7% against the US dollar to 0.7100, from the day’s opening level at 0.7149, after reaching an intraday high of 0.7157.

• The Australian dollar ended Wednesday’s session up around 0.65% against the US dollar, marking its second gain in three sessions, as part of a recovery attempt from a five-week low of 70.80 US cents.

• Aside from bargain buying at lower levels, the Australian dollar also found support from strong gains in US equities on Wall Street.

Australian labor market

Figures released Thursday by the Australian Bureau of Statistics showed net employment falling by 18,600 jobs in April, marking Australia’s first monthly job loss since November 2025, and coming in far worse than market expectations for an increase of 16,700 jobs. In March, employment had risen by 23,300 jobs after an upward revision from a previously reported gain of 17,900.

Government data also showed the unemployment rate rising to 4.5%, the highest level since November 2021, above market expectations of 4.3%, compared with 4.3% in March.

The data indicates easing tightness in Australia’s labor market, reducing pressure on policymakers at the Reserve Bank of Australia and reinforcing expectations that Australian interest rates will remain unchanged for as long as possible this year.

Australian interest rates

• Following the release of the data, market pricing for a 25 basis point rate hike by the Reserve Bank of Australia in June dropped sharply from 25% to 5%.

• Investors are now awaiting additional data on inflation, unemployment, and wage growth in Australia to reassess those expectations.

Opinions and analysis

Krishna Bhimavarapu, economist at State Street Global Advisors, said: “Today’s sharp rise in the unemployment rate suggests labor market conditions may be shifting faster than expected, reinforcing the Reserve Bank of Australia’s inclination to keep monetary policy unchanged in June.”

Harry Murphy Cruise, economist at Oxford Economics Australia, said the figures likely reflect economic conditions before the war, noting that companies’ hiring decisions usually lag behind broader economic shocks.

US crude oil prices fell below $100 per barrel on Wednesday after President Donald Trump said negotiations with Iran had reached their final stages.

US West Texas Intermediate futures dropped more than 5% to settle at $98.26 per barrel, while global benchmark Brent crude futures also lost more than 5% to close at $105.02 per barrel.

Trump said earlier this week that he halted the resumption of military strikes against Iran to allow more time for diplomacy, following requests from Gulf Arab allies. He later told reporters on Wednesday, according to media reports, that the US administration was in the “final stages” of negotiations with Iran.

The US president has repeatedly expressed optimism about the possibility of reaching a deal with Iran and ending the war quickly, although tensions have repeatedly resurfaced between Washington and Tehran afterward.

Iran and the United States have remained locked in a standoff for weeks, with Tehran imposing restrictions on shipping through the Arabian Gulf’s Strait of Hormuz, while Washington has continued measures targeting Iranian ports. The Strait of Hormuz remains one of the world’s most important routes for global oil and gas trade.

Citibank warned on Tuesday that markets are underestimating the risk of prolonged disruptions to oil supplies through the Arabian Gulf’s Strait of Hormuz, forecasting that Brent crude could reach $120 per barrel in the near term.

Bank analysts said they increasingly believe that “the Iranian regime is likely to disrupt oil flows through the Arabian Gulf’s Strait of Hormuz for some time.”

Consultancy firm Wood Mackenzie also projected that oil prices could surge to $200 per barrel under an extreme scenario in which the strait remains largely closed through the end of the year.

However, the firm added that prices would fall sharply if a rapid peace agreement between the United States and Iran reopens the Arabian Gulf’s Strait of Hormuz by June, potentially pushing Brent crude down to around $80 per barrel by the end of 2026.

Minutes from the latest Federal Reserve meeting, released on Wednesday, showed that most policymakers believe interest rate hikes may become necessary if the war with Iran continues to fuel inflation.

Although the Federal Open Market Committee once again kept its benchmark interest rate within a range of 3.5% to 3.75%, the meeting saw four dissenting votes, the highest number of objections since 1992, reflecting deep divisions over the future path of monetary policy.

The debate focused heavily on the impact of the Iran war on prices and how that should shape monetary policy decisions. Officials also disagreed over how long the conflict’s inflationary effects may persist and whether the post-meeting statement should continue signaling a bias toward rate cuts as the most likely next move.

While several participants said rate cuts would become appropriate once inflation clearly moves back toward the Fed’s 2% target or if the labor market weakens, the minutes stated that “a majority of participants nevertheless emphasized that tighter monetary policy could become appropriate if inflation remains persistently above 2%.”

Three of the four dissenting votes came from regional Fed bank presidents who argued that the central bank should keep the door open to further rate hikes amid the current inflation wave.

Although they agreed with holding rates steady, they objected to retaining language in the statement referring to “additional adjustments” in interest rates, wording widely interpreted as implying that the next move would likely be a rate cut.

The minutes noted that “many participants preferred removing language in the statement that implied an easing bias regarding the likely direction of future interest rate decisions.”

However, in Federal Reserve terminology, the word “many” does not necessarily mean a majority, which is why the wording remained unchanged in the official statement.

Officials broadly agreed that the conflict with Iran would have “significant implications” for the Fed’s efforts to achieve its dual mandate of full employment and price stability, although disagreements persisted regarding how long the war’s inflationary effects may last.

The minutes stated that “the vast majority of participants indicated that the risk had increased that inflation could take longer to return to the committee’s 2% target than previously expected.”

The Kevin Warsh challenge

The meeting came under unusual circumstances, as it was the final meeting chaired by Jerome Powell as head of the committee. It also coincided with intensifying inflationary pressures driven largely by the war, alongside other factors that pushed policymakers to remain cautious about the future direction of monetary policy.

Former Fed Governor Kevin Warsh is set to assume leadership of the Federal Reserve following a lengthy selection process that reportedly included as many as 11 candidates.

US President Donald Trump clearly selected Warsh with the expectation that the Fed would cut interest rates.

However, market pricing now suggests the next move by the Fed is more likely to be a rate hike, whether in late 2026 or early 2027.

Inflation had been moving toward the Fed’s 2% target throughout 2025 and into the beginning of this year, but the war changed the equation as energy prices surged sharply, pushing most inflation indicators back above 3%.

Central bankers typically look through supply-side shocks such as rising oil prices on the assumption they are temporary. However, core inflation — which excludes food and energy — has also continued to rise.

Goldman Sachs expects the Fed’s preferred inflation gauge to show annual growth of 3.3% in April when data is released next week.

The challenge facing Kevin Warsh will be convincing fellow policymakers that productivity gains driven by artificial intelligence applications could create deflationary effects strong enough to offset the temporary impact of higher energy costs.

One of those colleagues will be Jerome Powell himself, who has decided to remain on the Federal Reserve Board of Governors.

Powell still has two years remaining on his board term and said in April that he would remain “for a period to be determined later,” repeating an earlier statement that he would stay “until these investigations are fully concluded.”

No Federal Reserve chair has remained on the Board of Governors after stepping down as chair in nearly 80 years.