Market Overview

On Thursday, the U.S. dollar index slipped 0.3% to $99.69 after President Donald Trump announced that a peace settlement with Iran had been reached and that he had cancelled the scheduled strikes against the country. Trump told reporters that a signing ceremony would occur in Europe within days, that the Strait of Hormuz would reopen immediately upon signing, and that the U.S. naval blockade of Iranian ports would remain in force until the transaction was finalized. He also listed the participating parties as the United States, Israel, Saudi Arabia, UAE, Qatar, Turkey, Pakistan, Bahrain, Kuwait, Jordan, Egypt and others.

The announcement reversed earlier market sentiment that had boosted safe‑haven demand following Trump’s earlier threats of further attacks and a takeover of Kharg Island. Traders subsequently dialed back expectations of additional Federal Reserve rate hikes, although the release of the U.S. producer price index (PPI) kept tightening pressures alive.

U.S. Inflation Data

The Bureau of Labor Statistics reported that the headline PPI for May rose 1.1% month‑over‑month, matching April’s reading and well above the consensus estimate of 0.7%. On a year‑over‑year basis, headline PPI jumped 6.5%, the highest annual increase since November 2022, slightly exceeding the forecast of 6.4%. Core PPI, which excludes food and energy, increased 0.4% MoM and 4.9% YoY, both below the expected 0.5% MoM and 5.4% YoY. The strong headline figures, together with a robust labor market, suggest that the Federal Reserve’s first rate decision under new chair Kevin Warsh—due next week—will likely keep policy tight.

European Central Bank Action

The European Central Bank’s Governing Council announced a 25‑basis‑point increase across all three of its key policy rates, marking the first ECB hike since 2023 and the first major global reserve‑bank rate hike in response to the Middle‑East energy shock. ECB President Christine Lagarde said the decision was unanimous and driven by “major energy shock” observations since March. Deutsche Bank chief European economist Mark Wall described the move as “a significant moment,” noting that further hikes are unlikely beyond a possible September increase.

Following the decision, the euro appreciated 0.4%, trading at $1.1578 at 16:50 ET (20:50 GMT).

Asian Currency Movements

The Japanese yen halted a recent weakening trend, moving back below the 160 per dollar threshold that had previously triggered intervention by Tokyo in April. The Bank of Japan is scheduled to announce its interest‑rate decision next week, with market consensus pointing toward a tightening stance.

Contributors

The article was authored by Anuron Mitra with contributions from Ayushman Ojha and Pranav Kashyap.

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