The dollar firmed after the US rejected Iran’s counter-proposal, pushing EUR/USD toward $1.1745 before a 2.1 bln euro option expiry at $1.1750 anchored spot. US 10-year yields rose 3 bp to 4.39% ahead of Tuesday’s CPI.
The US rejection of Iran’s counter-proposal set the tone for Monday’s session, triggering a classic risk-off impulse across assets. The simple read is that ceasefire hopes have been dashed, but the North American market may view the move as predictable negotiation tactics. Still, the immediate transmission is clear: the dollar is mostly firmer, equities are lower, bond yields are climbing, and oil spiked above $100 before trimming gains. The chain runs from geopolitical uncertainty to higher energy prices, feeding inflation fears that lift yields and support the greenback while pressuring risk assets. For a broader view of how these forces shape the forex market analysis, the transmission is clear.
Before the weekend, the euro staged an impressive rally despite a poor German industrial output print and the first back-to-back gain in US nonfarm payrolls since April and May. EUR/USD recorded a session high near $1.1790 into the close. That resilience was notable, but the rejection of Iran’s counter-proposal quickly unwound some of that strength. In early turnover today, the pair fell to about $1.1745 before recovering to around $1.1780 in European trade.
The better read is that a massive options expiry is pinning spot. There are 2.1 billion euros in options struck at $1.1750 that expire today, and another 1.7 billion euros rolling off tomorrow. That concentration acts as a magnet, limiting sustained breaks. The euro’s ability to hold above $1.1745 despite the risk-off impulse and a widening rate differential suggests the options market is providing a floor. However, with US 10-year yields up more than three basis points to approach 4.39%, the rate advantage continues to favor the dollar. If the options-related support fades after today’s cut, EUR/USD could test lower. The next downside level to watch is the $1.1700 area, but a clean break would require a catalyst beyond the current geopolitical noise. For now, the pair is trapped in a tug-of-war between yield differentials and options flow. EUR/USD profile
The yen held below JPY157 before the weekend, even after $620 million in options struck at that level rolled off. The dollar fell to session lows near JPY156.45 following the US jobs data. Today, the greenback pushed to a three-day high near JPY157.20, but the market appears cautious ahead of the JPY157.40-50 zone. The simple narrative would be that higher oil prices hurt Japan’s import bill and weaken the yen, yet the currency has remained resilient. The better explanation is a mix of safe-haven demand and the looming presence of US Treasury Secretary Bessent in Tokyo.
Bessent has indicated that the weak yen is on the agenda, raising the specter of verbal intervention or even coordinated action. That threat caps USD/JPY upside, as traders fear a policy response. Additionally, the yen often attracts flows during geopolitical flare-ups, offsetting the oil headwind. The transmission here is not straightforward: higher oil normally widens Japan’s trade deficit and weakens the yen, but if the market prices in a hawkish shift from the Bank of Japan or joint US-Japan currency statement, the yen can strengthen. The upcoming Trump-Xi meeting later this week adds another layer of uncertainty. For now, USD/JPY is likely to remain rangebound between 156.50 and 157.50, with a break above 157.50 needing a clear deterioration in risk sentiment or a dovish BOJ signal.
Sterling outperformed the euro slightly before the weekend, ending at its best level since mid-February near $1.3630, even after Labour’s drubbing in local elections. The 10-year Gilt yield fell four basis points on Friday, the best performance in Europe. That calm has evaporated today. Prime Minister Starmer’s speech earlier today, promising bolder domestic action and a foreign policy shift to put the UK “at the heart of Europe,” failed to reassure markets. Sterling dropped to $1.3550 in early trading before recovering to around $1.3615, while the 10-year Gilt yield surged seven basis points, the worst in Europe.
The simple read is that political uncertainty is weighing on the currency. No cabinet officials have resigned, and Starmer brought back Gordon Brown and Harriet Harman in advisory roles, but the market is demanding a higher risk premium. The better read is that the Gilt selloff reflects fears of fiscal slippage or policy paralysis, which could force the Bank of England to keep rates higher for longer, but that is not yet supporting sterling because the risk-off environment and rising global yields are dominating. Initial support is seen near $1.3580, with a stronger floor in the $1.3540-50 area that has held in recent days. A break below that would open the door to $1.3500. The transmission from political risk to currency is indirect: higher Gilt yields could eventually attract capital, but for now, the pound is being dragged lower by the broader risk-off move and the perception that the UK’s political stability is fraying. GBP/USD profile
The Canadian dollar weakened for a third consecutive session after a poor jobs report contrasted sharply with the US data. USD/CAD tested the upper end of its three-week trading range, reaching a little above CAD1.3700, and settled above the 20-day moving average (near CAD1.3670) for the first time in a month. Today, the pair is consolidating between CAD1.3660 and CAD1.3700, with over $5 billion in options expiring at CAD1.3650 and CAD1.3660. The mechanism is straightforward: weak Canadian employment reinforces expectations that the Bank of Canada will cut rates further, widening the policy divergence with the Federal Reserve. Even the spike in oil prices, which normally supports the loonie, is being overshadowed by the domestic data. If USD/CAD can hold above 1.3700, the next target is the March high near 1.3750.
The Australian dollar reached almost $0.7280 mid-last week, its highest since June 2022, before consolidating and successfully testing support at $0.7200. It settled near $0.7250 on Friday. Today’s risk-off push sent it back to $0.7210, but it recovered to $0.7250 in early European trade. The consolidation looks constructive. The better read is that the Aussie is benefiting from China’s reflation story: consumer price inflation rose to 1.2%, producer prices jumped to 2.8%, and the trade surplus widened to $84.82 billion. These data points suggest robust demand for Australian commodities. However, the risk-off environment and a firm US dollar cap the upside. As long as $0.7200 holds, the bias remains higher, with a break above $0.7280 needed to resume the uptrend.
Mexico’s central bank cut interest rates last week even as April CPI (headline and core) remained above the upper end of the 2%-4% target range. Yet the peso was not punished; it rose to three-week highs, with the dollar falling to MXN17.1920. Today, the greenback briefly poked above MXN17.2550 before sellers reemerged, and it found support near MXN17.18. The simple take is that the rate cut was fully priced, and the peso’s carry advantage remains attractive. The better read is that near-shoring flows and high oil prices are providing a buffer. However, if oil spikes further, it could feed into domestic inflation and erode the peso’s real yield advantage. The dollar’s failure to hold above MXN17.25 suggests the market is still leaning short dollars, but a break above MXN17.30 would shift the near-term bias.
The offshore yuan strengthened to its best level in over three years, near CNH6.7910, as the PBOC set the dollar’s reference rate at a new low of CNY6.8467. China’s April data was uniformly strong: CPI rose to 1.2%, core CPI to 1.2%, PPI surged to 2.8%, and the trade surplus hit $84.82 billion. The transmission is clear: reflation and a massive trade surplus reduce the need for PBOC easing, supporting the yuan. The swaps market has already priced out rate cuts this year. The next chart level of significance is near CNH6.70, but the pace of appreciation will depend on the dollar’s broader direction and any escalation in geopolitical tensions.
The Indian rupee, by contrast, is under relentless pressure. Higher oil prices and foreign sales of bonds and stocks pushed the dollar to almost INR95.3165 today, approaching the record high of INR95.4375 set last week. Prime Minister Modi’s electoral success has not alleviated the strain. India imports the vast majority of its oil, so the spike directly widens the current account deficit. The transmission is mechanical: higher oil import costs increase dollar demand, weakening the rupee. Until oil prices retreat or capital flows reverse, the rupee is likely to test new record lows.
Equities are mostly lower, with Japan’s indices mixed and Europe’s Stoxx 600 nursing a small loss that would mark a third consecutive decline. US index futures are slightly in the red. The outlier is South Korea’s Kospi, which jumped another 4.3% today, bringing its monthly gain to about 18.5%, likely driven by tech sector momentum rather than macro forces. China’s CSI 300 gained 1.65%, buoyed by the strong trade and inflation data.
Bond markets are selling off, not rallying, despite the risk-off mood. European benchmark 10-year yields are 3-4 basis points higher, the 10-year Gilt yield is up 7 bp, and the 10-year US Treasury yield is up more than 3 bp to 4.39%. The transmission is through inflation expectations: the oil spike above $100, even if trimmed, reignites fears that central banks will have to keep rates higher for longer. That lifts yields and, in turn, supports the dollar.
Gold, typically a geopolitical hedge, is down. It was sold to a three-day low near $4648 and remains heavy below $4665, after settling around $4715 on Friday. The better read is that higher real yields and a stronger dollar are overpowering safe-haven demand. Silver is straddling the $80 area, confined to its pre-weekend range. June WTI crude poked above $100 on the initial rejection news but has since trimmed gains to near $97.35. The oil market is pricing in a supply risk premium, but the pullback suggests skepticism that a full-blown disruption is imminent, consistent with the view that the US rejection is a negotiating tactic.
The next concrete decision point is Tuesday’s US CPI report. After back-to-back payroll gains, a hot inflation print would cement expectations that the Fed will not cut rates anytime soon, pushing yields and the dollar higher. A softer number could relieve some pressure on risk assets and weaken the dollar. Beyond that, the Trump-Xi meeting later this week is a wildcard, though expectations should be kept modest. Bessent’s talks in Tokyo may yield a joint statement on currencies, which could cap USD/JPY. For now, the macro transmission from geopolitics to rates to currencies remains the dominant trade, and the CPI print will either validate or challenge the current hawkish repricing.
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