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The U.S. dollar strengthened notably on Friday, drawing strong support from safe-haven demand triggered by escalating geopolitical tensions between Israel and Iran. The Israeli military reported intercepting missiles fired from Iranian territory, while Iran announced it had shot down an Israeli drone near its sensitive Fordow nuclear facility. In response, President Donald Trump acknowledged full awareness of Israel's planned operations but expressed confidence in continued diplomatic negotiations, downplaying fears of a broader regional conflict. Amid the intensified Middle East uncertainty, investors turned defensively toward the greenback, causing Treasury yields to edge upward and significantly pushing WTI crude prices over 7% higher, underscoring market concerns about potential disruptions in global oil supplies. EUR/USD pressured lower, technical outlook remains constructive EUR/USD dropped sharply, hitting an intraday low of 1.1490 as the dollar broadly rallied amid increased risk aversion. However, the currency pair’s losses were partially offset by substantial euro option expiries totaling roughly EUR3.7 billion due Monday and short-lived rebounds in U.S. equity markets, which temporarily steadied investor sentiment. Technically, EUR/USD retained a mildly bullish outlook, managing to stay above its critical 10-day moving average, suggesting underlying resilience. Market participants will closely monitor developments from the upcoming G7 summit, seeking clarity on trade policies and geopolitical stances. Sterling dips but remains range-bound ahead of key events GBP/USD was weighed down by the broader rally in the dollar, but losses remained modest. The pair held within its established range between 1.3334 and 1.3652. UK Prime Minister Keir Starmer discussed the escalating situation in the Middle East with President Trump, urging diplomatic solutions and de-escalation. Looking forward, traders are awaiting crucial UK inflation data and the Federal Reserve's policy meeting next week, both of which could drive meaningful volatility for sterling, particularly given the balancing act between domestic economic pressures and geopolitical uncertainties. Yen gains on safe-haven appeal; USD/JPY faces technical hurdles USD/JPY initially moved higher but subsequently reversed course, retreating below its daily Ichimoku cloud and crucial 21-day moving average as U.S. equity markets declined later in the session. Increased demand for yen-denominated haven assets was driven by heightened geopolitical concerns, while the presence of significant option expiries—totaling nearly $7 billion near the psychologically important 145 level—added complexity to short-term positioning. Technical indicators suggest a critical juncture ahead: resistance at the Ichimoku cloud top at 145.59 must be overcome to restore bullish momentum, while substantial support remains around the 142 area. Commodity markets reflect cautious investor sentiment Gold prices advanced significantly, rising 1.56%, as geopolitical tensions drove investors toward safe-haven assets. Conversely, copper prices slipped modestly by 0.43%, reflecting broader market caution and persistent concerns about global economic growth and industrial demand. With energy markets sharply higher due to Middle Eastern risks, commodities demonstrated a distinctly mixed picture, emphasizing investor uncertainty about near-term market conditions.
The dollar index rose for a third consecutive day on Thursday, supported by safe-haven demand and further declines in sterling amid concerns over the U.K.’s fiscal outlook. U.S. markets were subdued due to a national holiday in honor of former President Jimmy Carter, but the Treasury yield curve steepened following hawkish commentary from Federal Reserve officials. Kansas City Fed President Jeff Schmid expressed reservations about additional rate cuts, citing economic resilience and persistent inflation above the Fed's 2% target. Fed Governor Michelle Bowman described the recent rate cut as the "final step" in recalibrating monetary policy, signaling caution amid ongoing inflation risks. Market attention now turns to Friday’s U.S. jobs report, with expectations of 160K non-farm payroll additions, 0.3% hourly earnings growth, and unemployment holding at 4.2%. A strong report could reinforce hawkish Fed commentary and provide further support for the greenback. Sterling Drops to 14-Month Low Amid Fiscal and Political Concerns Sterling fell to a 14-month low of 1.2239 before recovering to trade around 1.23, pressured by surging gilt yields and political uncertainty. Bank of England Deputy Governor Sarah Breeden reassured markets about orderly bond market conditions but highlighted challenges in gauging the pace of future rate cuts, keeping the pound under pressure. Euro Defensive Amid Strong Dollar and Higher Bund Yields The euro remained defensive, falling 0.20% against the dollar, but managed to limit losses thanks to rising bund yields, EUR/GBP short-covering, and technical support from large options near 1.03. Asian central bank rebalancing efforts may have also contributed to capping the dollar’s gains against the euro. Yen Gains Modestly on Haven Demand The yen strengthened against its G10 peers as investors sought safety amid broader risk-off sentiment. USD/JPY fell 0.15%, though yen gains were limited by ongoing weakness in Asian currencies and anticipation of strong U.S. jobs data. Treasury Yields Mixed as Curve Steepens Treasury yields showed a mixed performance, with front-end yields falling by 2 basis points while the 2s-10s curve steepened by 2 basis points to +42.1bp, reflecting cautious optimism about longer-term growth prospects amid persistent inflation concerns. Commodities See Positive Moves Amid Risk-Off Sentiment Oil: WTI crude rose 0.87%, driven by increased heating demand amid colder weather. Gold: Gained 0.25% as haven flows supported prices, despite broader dollar strength. Copper: Climbed on technical buying and resilient industrial demand, signaling optimism for base metals. Currency Markets Reflect Risk-Off Sentiment and Positioning Adjustments EUR/USD: Fell 0.20%, pressured by a stronger dollar, despite support from higher bund yields and technical factors. USD/JPY: Dropped 0.15%, reflecting haven-driven yen demand, though losses were limited by expectations of robust U.S. jobs data. GBP/USD: Declined 0.50%, weighed down by rising U.K. yields, political instability, and bearish sentiment. AUD/USD: Fell 0.30%, pressured by risk aversion and commodity price sensitivity. Cross-Currency Pairs: EUR/JPY and GBP/JPY fell 0.35% and 0.63%, respectively, reflecting broader risk-off sentiment and defensive positioning ahead of key data. Market Outlook: Jobs Report and Geopolitics in Focus Dollar: Likely to stay supported by haven demand and hawkish Fed commentary, with the U.S. jobs report expected to shape short-term momentum. Euro: Faces downside risks unless eurozone data improves or technical support near 1.03 holds. Sterling: Remains vulnerable to bearish sentiment unless political uncertainties and U.K. data show signs of improvement. Yen: Could gain further if risk aversion intensifies or if U.S. equity markets weaken. Commodity-Linked Currencies: Australian dollar and peers may face continued pressure unless risk sentiment improves or commodity prices rebound. Conclusion: Cautious Markets Brace for Key Economic Data As markets await Friday’s U.S. jobs report, the dollar remains firmly supported by robust yields and safe-haven flows. The euro and sterling face challenges from regional uncertainties and dollar strength, while the yen gains modestly on risk-off sentiment. Commodity markets reflect mixed dynamics, with oil and copper rising on supply and demand factors, while gold remains steady amid haven demand. Market volatility is expected to remain elevated as traders digest geopolitical risks and central bank signals heading into the weekend.