The euro declined in European trading on Friday against a basket of global currencies, resuming losses that were temporarily halted against the US dollar and heading toward a monthly decline in May, weighed down by higher US Treasury yields.

The single European currency came under pressure as the US dollar regained strength, with markets awaiting final approval from President Donald Trump for the preliminary peace agreement between Washington and Tehran.

Price Overview

• Euro exchange rate today: The euro fell more than 0.1% against the dollar to $1.1636, from today’s opening level at $1.1650, and recorded a high of $1.1656.

• The euro ended Thursday’s trading up more than 0.2% against the dollar, its first gain in the past three sessions, as risk appetite improved across markets, particularly amid reports of further progress in peace negotiations between the United States and Iran.

Monthly performance

• During May trading, which officially concludes with today’s settlement, the euro is currently down 0.85% against the US dollar and is on track to post its third monthly loss in the past four months.

• The monthly decline reflects investor preference for the US dollar as a safer alternative investment amid the fallout from the Iranian war and ongoing tensions between the United States and Iran.

• It also comes as the yield on the 10-year US Treasury note has risen to its highest level in a year due to mounting inflationary pressures on the Federal Reserve.

US dollar

The dollar index rose 0.1% on Friday, resuming gains that were temporarily interrupted in the previous session and moving toward a seven-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The rise comes as demand for the US dollar as a safe haven returns amid continued uncertainty surrounding the preliminary peace agreement between the United States and Iran, which is still awaiting final approval from President Donald Trump.

Latest developments in the Iranian war

• The United States and Iran have reached an agreement, but it still requires Trump’s final approval.

• The agreement includes a 60-day ceasefire, the lifting of restrictions on navigation through the Strait of Hormuz, and further nuclear negotiations.

• US President Donald Trump requested a few days to consider the final agreement.

• Iran’s state news agency said the agreement has not yet been finalized.

• The United States warned Oman against becoming involved in Strait of Hormuz transit fees.

European interest rates

• Reuters sources said last week that the European Central Bank is highly likely to raise interest rates in June due to inflation expectations moving toward an undesirable scenario.

• Amid declining global oil prices, money markets reduced pricing for a 25-basis-point European Central Bank rate hike in June from 70% to 55%.

• Investors are awaiting additional economic data from the eurozone on inflation, unemployment, and wages in order to reassess those expectations.

The Japanese yen declined in Asian trading on Friday against a basket of major and minor currencies, resuming losses that were temporarily halted yesterday against the US dollar and moving back toward its lowest level in four weeks. The currency is also on track to post a monthly loss in May, weighed down by higher US Treasury yields.

The yen’s decline comes alongside a renewed rise in the US dollar as markets await final approval from US President Donald Trump for the preliminary peace agreement between Washington and Tehran. The Japanese currency is also facing additional pressure after data showed a slowdown in Tokyo’s core inflation during May.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.1% to ¥159.36, from today’s opening level at ¥159.23, and recorded a low of ¥159.16.

• The yen ended Thursday’s trading up around 0.2% against the dollar, its first gain in the past three sessions, after earlier touching a four-week low of ¥159.65.

• Aside from buying activity from lower levels, the yen benefited from reports of a preliminary peace agreement between the United States and Iran.

Monthly performance

• During May trading, which officially concludes with today’s settlement, the Japanese yen is currently down about 1.8% against the US dollar, on track for its third monthly loss in the past four months.

• The monthly decline reflects investor preference for the US dollar as a safer alternative investment amid the fallout from the Iranian war and continued tensions between the United States and Iran.

• It also comes as the yield on the 10-year US Treasury note has risen to its highest level in a year due to mounting inflationary pressures on the Federal Reserve.

US dollar

The dollar index rose 0.1% on Friday, resuming gains that paused in the previous session and moving toward a seven-week high, reflecting renewed strength in the US currency against a basket of global currencies.

The rise comes as demand for the US dollar as a safe haven returns amid continued uncertainty surrounding the preliminary peace agreement between the United States and Iran, which is still awaiting final approval from President Donald Trump.

Latest developments in the Iranian war

• The United States and Iran have reached an agreement, but it still requires Trump’s final approval.

• The agreement includes a 60-day ceasefire, the lifting of restrictions on navigation through the Strait of Hormuz, and further nuclear negotiations.

• US President Donald Trump requested a few days to consider the final agreement.

• Iran’s state news agency said the agreement has not yet been finalized.

• The United States warned Oman against becoming involved in Strait of Hormuz transit fees.

Tokyo core inflation

Data released in Japan today showed Tokyo’s core consumer price index rose 1.3% in May, the slowest pace since March 2022, below market expectations of 1.5% and down from 1.5% in April.

Weaker-than-expected inflation readings in Japan indicate easing price pressures on Bank of Japan policymakers, reducing the likelihood of additional Japanese interest rate hikes this year.

Japanese interest rates

• Following the data release, market pricing for a quarter-point interest rate hike by the Bank of Japan at its June meeting declined from 65% to 60%.

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

The ¥160 threshold

Japanese authorities are closely monitoring movements in the local currency, particularly as the yen weakens toward the critical ¥160 per dollar level, which has long been viewed as a threshold that could trigger renewed intervention in the foreign exchange market.

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

Outlook for the Japanese yen

• Tony Sycamore, market analyst at IG, said previous intervention by the Bank of Japan provided policymakers with some relief, but questions remain regarding its long-term effectiveness.

• Sycamore added: “The key question is whether that intervention was worthwhile for what was essentially only a temporary one-month reprieve. Moreover, will authorities have the capacity to provide similar support if the ¥160 level is breached again in coming sessions?”

The Canadian dollar rose sharply against its US counterpart on Thursday, recovering from a six-week low as optimism grew over the possibility of reaching an agreement to extend the ceasefire in the Middle East, boosting investor risk appetite.

The Canadian dollar, known as the “loonie,” climbed 0.4% to C$1.3780 against the US dollar, equivalent to 72.57 US cents, heading for its biggest daily gain since April 30.

Earlier in the session, the Canadian currency had touched its weakest level since April 13 at C$1.3869 per US dollar.

The moves came after reports said the United States and Iran had reached an agreement to extend the ceasefire, pending approval from US President Donald Trump, following Iran’s targeting of a US base in Kuwait in response to American strikes against what Washington described as Iranian drone operations.

Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull, said markets had returned to believing a deal was possible, adding: “There’s risk appetite everywhere, including in the Canadian dollar.”

US stocks rose, while the US dollar weakened against a basket of major currencies.

US West Texas Intermediate crude prices also rose 0.4% to $89.06 per barrel, supporting the Canadian dollar since oil is one of Canada’s key exports.

In economic data, figures showed Canada’s current account deficit widened to C$7.18 billion in the first quarter, compared with a revised deficit of C$1 billion in the fourth quarter of last year.

Economists expect first-quarter GDP data, due Friday, to show the Canadian economy expanded at an annualized rate of 1.5%.

In a separate development, formal negotiations began between the United States and Mexico to rewrite the United States-Mexico-Canada trade agreement, amid US demands to tighten regional rules of origin, while Canada was excluded from the current round of talks.

Canadian Prime Minister Mark Carney called for a “new partnership” with the United States “to help make America great again” during a speech in New York.

In bond markets, Canadian government bond yields declined across maturities, with the 10-year yield falling 2.1 basis points to 3.444% after earlier touching its highest level in around a week at 3.499%.

Oil prices turned lower on Thursday, giving up earlier gains, after reports said negotiators from the United States and Iran had reached a preliminary agreement to extend the ceasefire and begin talks on Iran’s nuclear program.

Brent crude, the global benchmark, fell by 58 cents to close at $93.71 per barrel, while US West Texas Intermediate crude edged up by 22 cents to $88.90 per barrel.

According to US sources speaking to CNBC, negotiators reached a 60-day memorandum of understanding aimed at extending the truce and opening negotiations over Iran’s nuclear file, although US President Donald Trump has not yet given final approval.

Prices had risen earlier in the session following an exchange of military strikes between the United States and Iran, after Iran’s Revolutionary Guard announced it had targeted a US base early Thursday without disclosing its location.

Meanwhile, US Central Command said Iran launched ballistic missiles toward Kuwait, which were successfully intercepted.

Those developments came after US forces carried out new strikes inside Iran targeting a military site that Washington said posed a threat to American forces and commercial shipping through the Strait of Hormuz, while several Iranian drones were also intercepted and shot down.

Oil prices have fallen more than 10% since May 18, when Trump announced he had halted an imminent military strike against Iran to allow more time for negotiations.

US Secretary of State Marco Rubio said on Wednesday that talks with Iran had made some progress, stressing that Trump prefers a diplomatic solution and would give negotiations “every possible chance to succeed.”

Since a fragile truce was reached in April, Washington and Tehran have remained deadlocked over the future of navigation through the Strait of Hormuz.

Iranian state television reported on Wednesday that Tehran had agreed, under a draft memorandum of understanding with the United States, to restore commercial shipping traffic through the Strait of Hormuz to pre-war levels, with joint management of the waterway between Iran and the Sultanate of Oman. However, the White House described those reports as “completely fabricated.”

Trump later stressed that “no country will control navigation through the strait.”

In the same context, Amos Hochstein, former energy adviser in the administration of former US President Joe Biden, said Middle Eastern leaders now believe Iran already exercises de facto control over the Strait of Hormuz regardless of any formal agreement.

He added: “No matter what happens, the Iranians will control the Strait of Hormuz for the foreseeable future.”

Citigroup said in a research note that oil markets have begun stabilizing as fears of a complete supply disruption scenario ease amid signs that Washington and Tehran may be moving closer toward a possible agreement.

However, the bank also warned that persistently higher oil prices could increase global inflationary pressures, potentially pushing central banks toward more hawkish monetary policies to combat inflation driven by rising energy prices.