Oil's 3-4% jump after no weekend ceasefire progress flips the yield decline narrative, pushing the yen past JPY159 and testing BOJ capacity. ISM data today next.
Alpha Score of 46 reflects weak overall profile with moderate momentum, poor value, moderate quality, moderate sentiment.
Oil prices jumped 3-4% Monday after weekend reports showed no progress toward a Middle East ceasefire. The move reverses last week's 10.4% drop in July WTI and resets the yield outlook that had driven a seven-session decline in US 10-year yields.
July WTI crude settled below $87 on Friday for the first time since April 21, completing its worst weekly loss since the war began. That decline encouraged a seven-session streak of falling US 10-year yields, matching the longest since July-August 2024. The ceasefire narrative had reduced inflation expectations and taken some pressure off central banks.
Now those assumptions are in question. A series of skirmishes over the weekend and Israel's intensified assault on Lebanon dashed hopes. Reports indicate both Washington and Tehran are proposing amendments to a draft deal, each side believing it holds the superior hand. July WTI reached about $91.25 Monday, while August WTI recovered to $94.65. The $84.70 area–the 38.2% retracement of the war-inspired rally–held as technical support.
The 10-year Treasury yield is up three basis points to almost 4.47%. European rates are mostly 3-5 bp higher. The streak of declining US yields ended. If oil holds above $91, the disinflation tailwind that supported growth-sensitive currencies and gold will fade.
Risk to watch: A sustained oil bid above $91 would likely push the 10-year yield back toward the 4.60% area. That would strengthen the dollar against low-yielding currencies and pressure emerging market carry trades.
The dollar is consolidating above JPY159 and has not settled below that level since last Monday. Confirmation that the BOJ bought JPY11.7 trillion between late April and late May had little impact on the market. The yen was the weakest of the G10 currencies in May, losing almost 1.7% after appreciating about 1.35% in April.
About $1.3 billion in options struck between JPY159.25 and JPY159.27 expire today, adding a technical layer to the pair's positioning. The greenback has been pinned in a quarter-of-a-yen range above JPY159.25. The market is testing official resolve. The BOJ has intervened repeatedly, each time with diminishing effect on a sustained yen recovery.
The euro rose to about $1.1685 on Friday, its best level in a little more than two weeks. That is roughly the halfway mark of May's range. It is trading inside last Friday's range, confined to about $1.1640 to $1.1670. No breakout catalyst is visible. The eurozone's final May manufacturing PMI was confirmed at 51.6, a pullback from April's 52.2. The unemployment rate held at 6.3%.
Sterling stalled near the 20-day moving average for the third time in about two-and-a-half weeks. It is found slightly below $1.3480. At last week's high near $1.3510, sterling approached the 61.8% retracement of May's decline. Overcoming that level would lift the technical tone. Options for about GBP650 million at $1.3420 and almost GBP620 million at $1.3450 expire today.
The Australian dollar extended its recovery off the $0.7100 area to briefly trade above $0.7200 for the first time since mid-May. It settled at the 20-day moving average near $0.7185. Options for A$725 million at $0.7200 expire today. Australia's final May manufacturing PMI was 50.7, up from the 50.2 initial estimate. The Melbourne Institute's inflation gauge rose to 4.4% from 4.3% in April, its highest since end-2023. Still, softer April CPI figures softened expectations for another rate hike this year. The futures market is discounting about an 80% chance of another hike this year.
The Canadian dollar reached a six-session high on Friday as geopolitical hopes offset disappointing Q1 GDP data, which showed the second consecutive quarterly contraction. The greenback fell to CAD1.3770 before recovering. Options for about $785 million at CAD1.3790 expire today. Last week's high near CAD1.3870 remains the month's high. Canada's May manufacturing PMI is released today for the first time; it bottomed at 45.3 in April last year amid the US trade shock and recovered to a multiyear high of 53.3 in April.
The Mexican peso has been largely confined to the range set on May 20, with the dollar trading between about MXN17.26 and MXN17.43. The first round of Colombia's presidential election saw outsider De La Espriella finish ahead. A run-off will be held later this month, results are likely market friendly. The dollar set a new high for the week against the Colombian peso near COP3710 ahead of the results. The central bank meets at end-June, swaps market discounting a 25 bp hike after two 100 bp hikes this year. May inflation is due end of week, expected to edge closer to 6%. Expect the Colombian peso to outperform the Mexican peso in coming weeks.
The yuan reached a new three-year high on Friday, with the greenback falling to nearly CNH6.76 and CNY6.7660. The yuan has risen 3.15%-3.30% this year through May, the strongest currency in the region. The PBOC set the dollar's reference rate at a marginal new low: CNY6.8167 versus CNY6.8176 before the weekend.
The yuan's strength has not lifted other Asian currencies broadly. Only the Malaysian ringgit (about 2.4%), Singapore dollar (about 0.75%), and Taiwanese dollar (about 0.20%) have appreciated this year. The Hong Kong dollar has fallen about 0.70%. China's May manufacturing PMI was little changed at 50.0 from 50.3 in April.
The combination of aggressive central bank intervention, the oil price pullback, and a softer US dollar spurred a short squeeze of the Indian rupee. The rupee posted its third weekly rise in four weeks for the first time in three months. A roughly two-month uptrend has been violated. The dollar initially was sold to INR94.73, a three-week low, before recovering to settle a little above INR95.01. The RBI meets at end of week. Officials do not seem prepared to hike rates to defend the currency. A surprise hike would likely extend the rupee's recovery.
Gold reached a two-week high on Friday a little below $4600, though it settled closer to $4555 in the spot market. There has been no follow-through buying. Instead, gold is fraying $4500 in European turnover today. The prospect for an extended ceasefire had supported gold by reducing pressure on oil importers and exporters to sell and by softening interest rates. That thesis is now in question.
Silver traded quietly between about $74.60 and $76.65, well within the recent range. It is trading firmer but has held below $76.30.
The final US manufacturing PMI is overshadowed today by the ISM manufacturing report. The ISM has lagged the PMI, after stalling at 52.7 in April. A rise is expected to lift it to its best level in nearly four years. The US has gained about 16,000 manufacturing jobs this year after losing 108,000 in 2025 and 180,000 in 2024.
Mexico reports April worker remittances, an important source of capital inflows. Remittances averaged $4.82 billion in Q1 2026, slightly better than $4.75 billion in Q1 2025. The ECB's survey showed one-year inflation expectations unchanged at 4.0% and three-year expectations slipping to 2.9% from 3.0%.
AlphaScala's proprietary score on MSCI (ticker MSCI), a financial services firm tied to market risk appetite, sits at 46/100 – Mixed – reflecting the uncertainty from the shifting macro backdrop. See the MSCI stock page for full data.
Practical rule: The next major decision point for risk appetite remains the trajectory of Middle East diplomacy. If the lack of progress continues, the oil bid could extend toward $95, reinforcing the dollar against low-yielders. If ceasefire talks resume with concrete proposals, the pullback that started last week could resume. The ISM manufacturing report today will provide the next test for the dollar and yields. For a broader view, see our forex market analysis and the EUR/USD profile.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.