The US dollar traded near its highest level in two months on Thursday as renewed conflict in the Gulf region weighed on risk appetite, while investors remained alert to the possibility of Japanese intervention as the yen hovered near the key 160-per-dollar level.

Renewed attacks

Iranian attacks on Kuwait on Wednesday damaged Kuwait International Airport and left dozens injured, while the US military carried out strikes near the Strait of Hormuz, further complicating prospects for a diplomatic resolution to the conflict.

Although Israel and Lebanon reached a ceasefire agreement, a broader peace deal remains elusive, keeping oil prices elevated and supporting demand for the US dollar as a safe-haven asset.

The euro rose 0.1% to $1.161, while a Reuters poll showed the European Central Bank is expected to raise its deposit rate to 2.25% on June 11 in an effort to contain inflation. The British pound also gained 0.1% to $1.343.

The US Dollar Index, which measures the greenback against a basket of major currencies, was little changed at 99.46, remaining close to the two-month high of 99.56 reached in the previous session.

Francesco Pesole, currency strategist at ING, said it is difficult to argue against the dollar’s strength at the moment.

He added that economic data continue to portray a resilient US economy, while the latest exchange of military strikes between the United States and Iran has pushed global markets toward a risk-off stance.

The Australian dollar, which is sensitive to risk sentiment, was steady at $0.713 after data showed Australia’s goods trade balance returned to surplus in April.

Economic data

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

The yen and intervention risks

The Japanese yen traded at 159.89 per dollar, recovering from Wednesday’s low after briefly breaking above the 160 level for the first time since April 30, prompting verbal warnings from Japanese officials.

The 160 level is widely viewed by markets as a red line that could trigger official intervention to support the Japanese currency.

Meanwhile, Bank of Japan Governor Kazuo Ueda strengthened expectations of a June rate hike through a noticeably more hawkish tone on inflation. Rising energy costs linked to the Iran conflict have increased upside inflation risks and opened the door to more frequent increases in borrowing costs.

Naohiko Baba, Head of Japan Research and Chief Japan Economist at Barclays, wrote that the central bank’s hawkish stance has become more pronounced, including explicit concern about the risk of falling behind the inflation curve, while maintaining the bank’s expectation of a rate hike in June.

Gold prices climbed more than 1% in European trading on Thursday and are on track for their second gain in three sessions, supported by a weaker US dollar and lower oil prices. The move comes after a ceasefire agreement was reached in southern Lebanon, reinforcing expectations that the United States and Iran may be moving closer to a broader peace deal.

If oil prices continue to decline, inflationary pressures on Federal Reserve policymakers are likely to ease, reducing the probability of a US interest rate hike in December.

Price overview

• Gold rose 1.1% to $4,484.08, up from an opening level of $4,434.81. The session low was $4,424.23.

• At Wednesday’s settlement, gold fell 1.2% as renewed military tensions in the Gulf region boosted demand for safe-haven assets. The metal had gained 0.1% in the previous session.

US dollar

The US Dollar Index fell 0.2% on Thursday, pulling back from a two-month high of 99.55 and heading toward its first loss in four sessions, reflecting weakness in the US currency against a basket of major and minor currencies.

In addition to profit-taking, the dollar came under pressure as risk sentiment improved following the announcement of a US-brokered ceasefire agreement between Hezbollah and Israel.

Global oil prices

Oil prices declined more than 2.0% on Thursday, retreating from their highest levels in nearly two weeks and heading for their first daily loss in four sessions.

The decline reflects growing optimism that the United States and Iran could reach a peace agreement that includes 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 that could bring the Iran conflict to an end.

• Trump said Iran had agreed to abandon nuclear weapons, while cautioning 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.

US interest rates

• New York Federal Reserve President John Williams said he does not expect inflation risks stemming from the Middle East conflict to be long-lasting and reiterated that there is currently no need to alter the course of monetary policy.

• According to CME’s FedWatch Tool, the probability of a Federal Reserve rate hike at the December meeting declined from 59% to 55%.

• Markets continue to price a 96% probability that rates will remain unchanged at the June meeting, while the probability of a 25-basis-point rate cut stands at 4%.

• Investors continue to monitor incoming US economic data and comments from Federal Reserve officials in order to reassess rate expectations.

• Weekly jobless claims data are due later on Thursday, while the US nonfarm payrolls report for May will be released on Friday.

Gold outlook

Tim Waterer, Chief Market Analyst at KCM Trade, said gold remains heavily influenced by movements in the US dollar and oil prices, as the precious metal tends to benefit when both decline. He added that sustaining the current upward momentum will depend on continued positive developments in US-Iran relations.

Matt Simpson, Senior Market Analyst at StoneX, said he does not believe the broader bull market has ended, but noted that a market-wide correction appears necessary. He expects significant volatility throughout the remainder of the year, while maintaining a bullish bias that could push gold toward the $5,000 level by year-end.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined by 1.14 metric tons on Wednesday, marking a fifth consecutive daily reduction. Total holdings fell to 1,026.86 metric tons, the lowest level since October 15, 2025.

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.