Dollar Gains as Tariff Threat and Iran Tensions Converge

The US dollar is gaining across most G10 pairs as two distinct shocks hit the macro backdrop simultaneously. The US is threatening new tariffs of at least 10% on imports from 60 trading partners, while clashes with Iran continue to escalate, lifting oil prices and bond yields. The greenback tested JPY160 without breaking it, its highest since the late April intervention, and pushed EUR/USD below $1.1620. The Norwegian krone is the strongest G10 currency, helped by oil gains, while the yen is the other exception as BOJ Governor Ueda’s comments failed to stem weakness.

EUR/USD Breaches $1.1620 as Eurozone PMI Stays Sub-50

EUR/USD failed to hold above $1.1650 yesterday and sold off to $1.1615 in the North American afternoon. It retested that level today, and the low does not appear to be in place. Last week’s low was near $1.1585, and May’s low was closer to $1.1575, which also marks the 61.8% retracement of the euro’s rally from the mid-March low near $1.1410. Options for 1.3 billion euros at $1.1625 expire today, adding a technical magnet.

The eurozone’s final May services PMI came in at 47.7, better than the flash reading of 46.4 but still below the 50 boom/bust level for the second consecutive month. The composite PMI was 48.5, up from 47.5 flash but marking the third straight decline. April PPI surged to 4.9% year-over-year from 2.0% in March, adding to stagflation concerns. The ECB faces a difficult path: a June hike is expected, the weakening services sector argues against aggressive tightening.

USD/JPY Tests JPY160 as BOJ Hike Bets Fail to Stem Yen Weakness

The dollar rose against the yen and got as close to JPY160 as possible without trading it. It is the highest since the April 30 intervention. BOJ Governor Ueda’s comments seemed to suggest a rate hike this month, pushing swap-market pricing to nearly 22 basis points of a hike, up from 19.5 bp in the prior three sessions. Yet the yen remains under pressure. The market remains wary of intervention, and options for $660 million at JPY160 expire today.

Key insight: The yen’s weakness persists because the BOJ’s tightening path is still seen as gradual relative to the Fed’s hold. The 10-year JGB yield tumbled nearly 11 bp yesterday but rose 6.5 bp today to 2.62%, reflecting the conflicting signals.

Sterling and Commodity Currencies: Mixed Signals

GBP/USD fared better than the euro, briefly pushing above $1.3480 yesterday to approach the pre-weekend high. It frayed the 20-day moving average near $1.3470 but failed to settle above it. Today it softened to a session low just above $1.3435. Options for almost GBP 415 million at $1.3440 expire today. The UK’s final May services PMI was 49.3, confirming the first sub-50 reading since April 2025, though better than the initial 47.9.

The Canadian dollar looks vulnerable. USD/CAD reached nearly CAD1.3855 in the European morning, was sold to about CAD1.3815, then recovered toward CAD1.3845. Last week’s high was near CAD1.3870, the greenback posted a key downside reversal afterwards. A push above CAD1.3870 could signal CAD1.3900 next, with the April high near CAD1.3950.

The Australian dollar traded firmly within Monday’s $0.7135-$0.7190 range, holding support near $0.7170. Australia’s Q1 26 GDP grew 0.3% after 0.9% in Q4 25, the final May services PMI was 48.7, down from an average of 51.8 in Q1 26.

WTI Crude Surges to $97 on Iran-Hezbollah Ceasefire Rejection

July WTI crude held support near $90 yesterday and reached $94 in late turnover. News that Hezbollah was rejecting a partial ceasefire and reports of continued Israeli strikes in southern Lebanon put a floor under prices. The contract rose to $97 today, a seven-session high, pressing against resistance. The 10-year US Treasury yield was flat near 4.45% yesterday is now near 4.48%, with benchmark yields up 3-4 bp in Europe today.

The crude rally is driven by supply risk premia. The apparent lack of progress in negotiations and continued strikes during the ceasefire period have lifted the contract to $97. This is a key level: a break above could open the path to the $100 psychological barrier. The Norwegian krone benefits directly, while the Canadian dollar gets indirect support through the energy sector.

Higher oil prices feed into inflation expectations, which in turn lift nominal yields. The 10-year JGB yield rose 6.5 bp today after tumbling yesterday. The Fed’s Beige Book, prepared for the June 16-17 FOMC meeting, will be released late today and may offer clues on how policymakers view the energy price pass-through.

Tariff Threat Adds Structural Dollar Demand Across EM FX

The US is threatening new tariffs of at least 10% on imports from 60 trading partners over how goods allegedly from forced labor are handled. This levy would apply to Canada, Mexico, the EU, Taiwan, and the UK, while China, Japan, India, South Korea, Brazil, and Switzerland would face a 12.5% tariff. A public comment and review period is planned to run into early July before implementation.

Practical rule: Tariff threats boost the dollar by raising import costs and reducing trade volumes, which tightens financial conditions. The dollar’s safe-haven bid is reinforced when the tariff scope is broad and includes major trading partners.

The Mexican peso rose to a six-session high remains within a consolidative range. USD/MXN trended lower from Monday’s peak near MXN17.40 to below MXN17.2650 before recovering to near MXN17.31. The Indian rupee gapped higher to INR95.80, an eight-session high, with reports that the government will soon announce steps to encourage foreign investment in the sovereign bond market.

The dollar made a marginal new three-year low against the offshore yuan near CNH6.7580 yesterday bounced to a four-session high near CNH6.7760 today. The yuan is near three-year highs against the trade-weighted basket the PBOC monitors. The PBOC set the dollar’s fix at CNY6.8184 today.

The US threat to impose a 25% tariff on Brazilian goods in 30 days was largely shrugged off because exports to the US account for only about 2% of overall Brazilian exports, key imports like coffee, beef, some fruits, and aircraft parts are excluded.

Data Calendar: ADP, ISM, and Fed Beige Book in Focus

Today’s US economic calendar is packed. The highlight is the ADP private sector jobs estimate, with a median forecast of 120k after 109k in April. The final services and composite PMI will be overshadowed by the ISM services index. Factory orders are also due, preliminary durable goods orders will steal the thunder. Late in the session, the Fed’s Beige Book for the June 16-17 FOMC meeting will be released.

In Canada, productivity data for Q1 26 is expected to show a small gain of 0.3% after a 0.1% decline in Q4 25. The May services and composite PMI are due, both below the 50 boom/bust level in April.

The RBI meets at the end of the week. India’s services PMI rose to 59.8 from 58.9, the composite rose to 59.3 from 58.1, the highest since last November. The consensus is for a hold, some speculation of a hike has crept in.

Among the stocks tracked by AlphaScala, ADP (Automatic Data Processing) carries an Alpha Score of 48/100 (Mixed) in the Industrials sector. MSCI scores 46/100 (Mixed) in Financial Services. Boeing scores 39/100 (Mixed) in Industrials. These scores reflect the mixed macro environment where tariff and war risks create headwinds for industrials while financials face rate uncertainty.

For traders, the key levels to watch are EUR/USD at $1.1575 (May low), USD/JPY at JPY160 (intervention trigger), and WTI at $100 (psychological resistance). The next concrete catalysts are the ADP and ISM data today, followed by the Fed Beige Book. A break above JPY160 without intervention would signal a new leg higher for the dollar, a strong ISM services print could reinforce the yield bid.

For more on the dollar’s transmission across pairs, see the EUR/USD profile and GBP/USD profile. Broader forex market analysis covers the tariff and war risk premia in detail.