I) US
The Bloomberg Dollar Spot Index is trading below its 200-day moving average and has been under mild but persistent downward pressure, falling in three of the past four sessions. The primary driver is the oscillating US-Iran peace deal narrative — dollar strength tends to reassert when talks stall, while optimism around a Strait of Hormuz reopening softens it. On Thursday, the dollar index edged 0.2% lower to 99.463 as markets partially priced in a ceasefire holding. G-10 FX volatility is at its lowest level since 2020, with EUR/USD in particular locked in a narrow range.
II) EU
EUR/USD is holding just above a one-week low, with upside seen as limited. The ECB is widely expected to deliver a 25bp "insurance hike" at its meeting next week — ECB's Rehn described it as such — with swaps pricing approximately 64bps of total tightening by year-end. However, BNY notes that the hawkish ECB stance has provided little support to the euro, as tighter policy risks weighing on an already fragile eurozone growth outlook. Any breakout in EUR/USD is seen as more likely to be dollar-driven than euro-driven.
III) UK
Sterling is holding up relatively well at 1.34, supported by the UK's high-yield environment — 30-year gilt yields above 5.5% continue to attract foreign capital. The BOE is pricing approximately 40bps of rate increases this year, with policymaker Megan Greene arguing the case for hikes grows stronger the longer the Iran war drags on. Political uncertainty around a potential change in government remains a background risk.
IV) Japan
The yen is the most closely watched currency in G10 markets. USD/JPY is hovering just below the critical 160 level, which carries significant option strike concentration — a $2.72 billion notional USD/JPY 160-strike expired Thursday — and is widely seen as the threshold that would trigger Japanese intervention. The yen briefly strengthened to 159.61 earlier Thursday after Bloomberg reported that BOJ officials are considering a 25bp rate hike at their June 15–16 meeting, with the possibility of a further hike later in 2026. Two-week dollar-yen butterfly spreads have risen to their highest since October 2022, reflecting intense hedging activity ahead of the BOJ meeting and potential intervention. Japan's Finance Minister reiterated readiness to act on FX "at any time as needed."
V) China
The yuan has been one of the stronger performers in Asia, reaching its highest level against a trade-weighted basket of peers since September 2022, as Chinese assets attract regional safe-haven inflows during the Iran conflict. The PBOC set Thursday's fixing at 6.8203 per dollar — notably stronger than the market estimate of 6.7785 — maintaining its pattern of using the daily fix to manage appreciation. The yuan slipped modestly on Wednesday, posting its biggest loss in weeks as the dollar strengthened on fading Iran peace deal hopes, with USD/CNH rising 0.3% to 6.7801.
