Following a turbulent start to the week, global markets have calmed as the ceasefire between Israel and Iran continues to hold. Meanwhile, the Trump administration disputes claims that U.S. airstrikes have only delayed Iran's nuclear program by a few months. The U.S. dollar, which had weakened to yearly lows against the euro and pound, is now showing signs of recovery. While the Australian and New Zealand dollars are slightly stronger, other major currencies, including the yen and Swiss franc, have softened. Emerging market currencies show a mixed picture, with Central European ones generally weaker and some Asia Pacific currencies slightly firmer, apart from the Chinese yuan and Korean won.

Asia Pacific Markets

In the Asia Pacific region, the Australian dollar staged a strong rebound after hitting a six-week low, nearing $0.6520 and approaching highs seen earlier this month. This recovery came despite a drop in May’s inflation data, reinforcing market expectations for a potential interest rate cut at the upcoming central bank meeting in July.
In Japan, the yen weakened after a 10 basis point fall in U.S. 10-year yields over three sessions. The dollar regained ground against the yen, rising close to JPY145.70. While Japan's service producer prices rose 3.3% year-over-year, BOJ officials hinted at the possibility of future rate hikes, although market expectations for such moves remain limited this year.

European Markets

The euro rose to a fresh three-year high, briefly surpassing $1.1640, and maintained strong support above $1.1590. The German government's announcement of increased borrowing—up nearly 20% from previous plans to support infrastructure and defense—did not dent market confidence. Auto sales in the eurozone rose modestly in May, reversing earlier declines seen during Q1.
Meanwhile, the British pound rallied from a recent five-week low to nearly $1.3650, hitting its highest level in three years. Despite the rally, the currency looks somewhat overextended. This sterling strength, primarily due to dollar weakness, is boosting expectations that the Bank of England may cut rates at its August meeting.

American Markets

U.S. dollar weakness, triggered by easing geopolitical tensions, led to aggressive selling early in the week, bringing the Dollar Index close to a three-year low around 97.60. Though a modest recovery followed, trading remains confined within a narrow band. Federal Reserve Chair Powell reiterated recent statements, emphasizing the impact of tariffs on inflation and suggesting that without these pressures, the Fed might have continued its easing cycle. Despite some policymakers hinting at a possible rate cut in July, market pricing indicates only a 20% probability. Additionally, May's new home sales are expected to have declined after a sharp rise in April, with projections pointing to an annualized rate around 694,000 units.