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GBP steadies as increased risk aversion offsets hawkish BoE tone

  • GBP/USD stays calm as a firm US Dollar draws safe-haven support from stalled US-Iran peace talks and Middle East tensions.
  • Closing the Strait of Hormuz raises energy prices and inflation, keeping Fed interest rates higher for longer.
  • BoEโ€™s Megan Greene grew hawkish, backing faster rate hikes because response speed is as vital as size.

GBP/USDย moves little following a four-day winning streak, trading around 1.3470 during the Asian hours on Wednesday. The pair steadies as the US Dollar (USD) remains firm, driven by stalled US-Iran peace negotiations and renewed tensions in the Middle East, continued to underpin safe-haven demand.

Iran launched ballistic missiles toward neighboring Kuwait and Bahrain. The United States Central Command (CENTCOM) said on Tuesday that it had intercepted and defeated a series of Iranian missile and drone attacks targeting regional neighbors, including Kuwait and Bahrain, while also carrying out self-defence strikes on Iranโ€™s Qeshm Island, per ABCย News.

A prolonged closure of the Strait of Hormuz threatens to drive energy prices higher and intensify global inflationary pressures, reinforcing expectations that theย Federal Reserveย (Fed) will maintain elevated interestย ratesย for an extended period.

This higher-for-longerย outlookย is heavily supported by a resilient US economy, highlighted by the ISMย Manufacturing PMIย climbing to 54 in May 2026, up from 52.7 in the prior two months and beating forecasts to mark the strongest factory expansion since May 2022.

Further evidence of economic strength appeared in the labor market, where April JOLTS data showed Job Openings surging to a nearly two-year high of 7.6118 million alongside declining layoffs. With robust manufacturing and employment data complicating the inflation outlook, investors are now anxiously awaiting Fridayโ€™s Nonfarm Payrolls report for definitive clues on the future trajectory of monetary policy.

Bank of England (BoE) policymakers maintained a firm stance on inflation. Policymaker Megan Greene delivered hawkish remarks, signaling a growing justification for interest rate hikes and emphasizing that “the speed of the response is arguably just as important as its size.” Her comments follow statements from BoE Governor Andrew Bailey, who stressed the importance of public confidence in the central bank’s commitment to returning inflation to its 2% target.

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Canadian Dollar weakens despite higher oil prices

  • USD/CAD gains as market risk aversion leaves the Canadian Dollar flat, failing to capitalize on rising crude oil prices.
  • WTI rises as Middle East supply fears grew after Iran fired unsuccessful ballistic missiles at Kuwait and Bahrain.
  • US Dollar strengthens as the Strait of Hormuz closure raises energy prices and inflation, keeping Fed rates higher for longer.

USD/CAD edges higher after posting minor losses in the previous day, trading around 1.3850 during the Asian hours on Wednesday. The commodity-linked Canadian Dollar (CAD) fails to capitalize on rising crude oil prices as intensifying market risk aversion prompts trader caution, keeping the currency flat.

West Texas Intermediate (WTI) climbed for a third consecutive session, trading near $92.60 per barrel at the time of writing. This price surge follows a fresh escalation of hostilities in the Middle East, where Iran launched ballistic missiles toward neighboring Kuwait and Bahrain. According to ABC News, US Central Command (CENTCOM) successfully intercepted the missile and drone attacks while executing self-defense strikes on Iranโ€™s Qeshm Island.

The threat of a prolonged closure of the Strait of Hormuz has stoked fears of a broader energy supply disruption, which could drive global inflationary pressures higher. This backdrop strongly reinforces expectations that the Federal Reserve (Fed) will maintain elevated interest rates for an extended period, supporting the US Dollar (USD). This higher-for-longer monetary outlook is heavily supported by a resilient US economy, highlighted by the May 2026 ISM Manufacturing PMI jumping to 54.0 from 52.7, beating forecasts to mark the strongest factory expansion since May 2022.

Further evidence of economic strength appeared in the labor market, where April JOLTS data showed job openings surging to a nearly two-year high of 7.61 million alongside declining layoffs. With robust manufacturing and employment data complicating the inflation outlook, investors are now anxiously awaiting Fridayโ€™s Nonfarm Payrolls report for definitive clues on the future trajectory of Fed policy.

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Offshore Yuan Retreats on Mixed PMI Data

The offshore yuan weakened to 6.76 per dollar on Wednesday, retreating from a more than three-year high reached in the previous session, as investors weighed mixed PMI data that highlighted the fragility of China’s economic recovery. A private survey showed China’s Composite PMI rose to a three-month high of 54 in May, with the services PMI also reaching a three-month peak of 54.4. However, manufacturing activity lost momentum, with the PMI falling to 51.8 from April’s five-year high of 52.2. Earlier this week, official data painted a more subdued picture, showing the Composite PMI inching up to 50.5 from 50.1, supported by a modest pickup in non-manufacturing activity (50.1 vs 49.4), while the manufacturing PMI slipped to the expansion-contraction threshold of 50 from 50.3. Moreover, risk sentiment remained restrained amid renewed tensions in the Middle East after Iran launched ballistic missiles toward neighboring countries, prompting retaliatory US strikes on Qeshm Island.

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Technical Analysis – EUR/USD calm despite “hotter” core CPI data from Eurozone

The EUR/USD pair failed to rally despite stronger-than-expected Eurozone inflation data, suggesting that investors remain cautious about the euro’s strength amid mixed economic signals from the region. On one hand, inflation pressures appear to be re-emerging, while on the other, cyclical sectors such as manufacturing continue to show weakness, and the labor market is displaying increasingly concerning signs of slowing momentum.

The preliminary May CPI report showed headline inflation rising by 3.2% year-over-year, in line with forecasts and unchanged from the previous reading. However, core CPI surprised to the upside, accelerating to 2.6% versus expectations of 2.4% and the prior reading of 2.2%. EUR/USD is currently trading in the middle of an upward-sloping price channel. The key resistance zone appears to be located around 1.167โ€“1.170, while 1.160 remains an important support level.

The EMA50 and EMA200 moving averages (orange and red lines) are positioned close to current market levels, suggesting that the 1.164 area could act as a short-term momentum pivot. Given that the current relatively modest recovery follows a sharp decline from the 1.20 area, it remains possible that the pair is forming a bearish flag pattern. A break below 1.160 would strengthen that technical scenario and potentially signal a continuation of the broader downtrend.

Source: xStation5

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Euro Little-Changed as Investors Assess Inflation Data

The euro held near $1.165 as investors processed mixed signals from Eurozone inflation data and the Middle East conflict. Euro-area inflation climbed to 3.2% in May, its highest in over two and a half years, driven by soaring energy costs tied to the war. However, core inflation accelerated more than expected to 2.5%, and services inflation rose to 3.5%, signaling broadening price pressures beyond energy. The data precedes next weekโ€™s European Central Bank meeting, with markets pricing in a 95% chance of a 25-basis-point rate hike, with two or possibly three increases expected this year. Meanwhile, ECBโ€™s Isabel Schnabel cautioned on Monday that itโ€™s premature to specify the number of rate hikes needed, while Lithuaniaโ€™s Gediminas ล imkus suggested another hike after June is probable. Elsewhere, oil prices fell amid conflicting reports from US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu on Lebanon talks, with Iran pausing US negotiations until clashes cease.

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British Pound nudges higher as traders await progress on Middle East peace talks

  • GBP/USD posts modest gains near 1.3460 in Tuesdayโ€™s Asian session.ย 
  • The potential upside for the pair might be limited as the status of Iran’s peace talks remains unclear.ย 
  • US ISM Manufacturing PMI rose to 54 in May, stronger than expected.ย ย 

The GBP/USD pairย trades in positive territory around 1.3460 during the Asian trading hours on Tuesday. However, renewed tensions in the Middle East might cap the upside for the major pair as Iran has reportedly withdrawn from negotiations with the US. Traders will closely monitor the developments surrounding Middle East peace talks.

Iranโ€™s state media said Tehran on Monday had suspended talks over Israelโ€™s actions in Lebanon. Separately, US President Donald Trump stated that he believes an agreement to reopen the Strait of Hormuz and extend the ceasefire with Iran is reachable โ€œover the next week.โ€ Mixed signals and uncertainty in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the major pair in the near term. 

Data released by the Institute for Supply Management (ISM) on Monday showed that the US Manufacturing Purchasing Managers’ Index (PMI) rose to 54 in May from 52.7 in April. This figure came in better than the market expectation of 53.0.

On the UKโ€™s front,ย BoEย governor Andrew Bailey said on Friday that the UK central bank is in no rush to raise interestย ratesย while the outcome of the Iran war remains uncertain and the UKโ€™s growth rate stays weak. Money market futures now imply 32 basis points (bps) of tightening this year, one quarter-point hike, and roughly a 30% chance of a second, according to Reuters.ย 

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New Zealand Dollar remains depressed against firmer USD; hawkish RBNZ limits losses

  • NZD/USD attracts some sellers for the second straight day amid a modest USD strength.
  • Geopolitical uncertainties and rising Fed rate hike bets offer some support to the buck.
  • The RBNZโ€™s abrupt hawkish shift could act as a tailwind for the NZD and help limit losses.

The NZD/USD pairย trades with a negative bias for the second straight day, albeit it lacks bearish conviction and holds above the previous day’s swing low. Spot prices currently trade near the 0.5925-0.5920 region, down around 0.15% for the day on the back of a modest US Dollar (USD) strength.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, looks to build on the previous day’s gains amid the uncertainty over US-Iran peace talks and hawkish USย Federal Reserveย (Fed) expectations. In fact, US President Donald Trump asserted that peace talks were ongoing with Iran, and said that he will have an agreement to extend the ceasefire and reopen the Strait of Hormuz over the next week. Iran, however, warned that it would suspend negotiations following fresh US strikes and an Israeli military operation in Lebanon.

This keeps geopolitical risk premium in play and acts as a tailwind for the safe-haven USD. Meanwhile, renewed tensions in the Middle East continue to fuel concerns over inflation and expectations that the US central bank will raise borrowing costs by the end of this year. According to the CME Group’s FedWatch Tool, traders are assigning over a 50% chance that the Fed will hike interestย ratesย by at least 25 basis points (bps) at the December policy meeting. This turns out to be another factor underpinning the USD and exerting pressure on the NZD/USD pair.

The downside, however, seems limited in the wake of the Reserve Bank of New Zealand’s (RBNZ) abrupt hawkish shift. The central bank’s forecast strongly projects a 25 bps rate increase at the upcoming July 8 meeting and indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. This might continue to lend some support to the New Zealand Dollar (NZD) and hold back traders from placing aggressive bearish bets around the NZD/USD pair, warranting caution before positioning for any further losses.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.21%0.04%0.21%0.34%0.22%0.80%0.74%
EUR-0.21%-0.17%0.02%0.13%0.01%0.62%0.54%
GBP-0.04%0.17%0.21%0.30%0.17%0.79%0.69%
JPY-0.21%-0.02%-0.21%0.15%0.05%0.60%0.52%
CAD-0.34%-0.13%-0.30%-0.15%-0.13%0.45%0.39%
AUD-0.22%-0.01%-0.17%-0.05%0.13%0.61%0.53%
NZD-0.80%-0.62%-0.79%-0.60%-0.45%-0.61%-0.10%
CHF-0.74%-0.54%-0.69%-0.52%-0.39%-0.53%0.10%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

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Swiss Franc remains calm ahead of Trade Balance data

  • USD/CHF stabilizes as the US Dollar gains safe-haven support following reports that Iran halted indirect negotiations with America.
  • The Greenback rose as renewed Middle East tensions fueled inflation fears and expectations of elevated Federal Reserve interest rates.
  • Despite a minor GDP miss, Swiss consumer and industrial activity demonstrated remarkable resilience.

USD/CHF moves little after registering modest gains in the previous day, trading around 0.7870 during the Asian hours on Tuesday. The pair steadies as the US Dollar (USD) remains firm on increased safe-haven demand after Tasnimย newsย agency indicated that Tehran has halted indirect negotiations with the United States. Traders await the Swiss Trade Balance data release due later in the day.

According to the report, Iran and its “Resistance Front” allies, spanning Yemen, Lebanon, and Iraq, have established an agenda to completely block the critical Strait of Hormuz and activate additional fronts, including the Bab el-Mandeb Strait, as a means to punish Israel and its supporters.

The escalation was further compounded by an Axios report on X stating that Iran deployed additional naval mines in the strait last week. These combined developments pose a severe obstacle to a swift resolution of the crisis, which has already effectively shut down the Strait of Hormuz, a vital chokepoint for global oil and liquefied natural gas supplies.

Renewed tensions in the Middle East continue to fuel global inflation concerns and stoke expectations of elevatedย Federal Reserveย (Fed) policyย rates. Reflecting these persistent inflationary pressures, financial markets are now pricing in a potential Federal Reserve (Fed) rate hike before the year ends, with the CME FedWatch tool currently indicating a 39% probability of a quarter-point increase in December.

On Monday, recent economic data from Switzerland presented a mixed but generally strong picture of the country’s financial health. On the growth front, Switzerland’s Gross Domestic Product (GDP) expanded by 0.4% quarter-on-quarter in the three months to March, falling slightly short of initial market estimates that had predicted a 0.5% expansion.

Despite the minor GDP miss, consumer and industrial activity showed remarkable resilience. Retail sales in Switzerland surged by 1.6% year-on-year in April 2026, far exceeding market expectations for a modest 0.2% rise and following an upwardly revised 1% gain in the previous month.

Compounding this positive momentum, the country’s industrial sector saw a significant boost as the procure.chโ€“UBSย Manufacturing PMIย jumped to 57.3 in May 2026 from 54.5 in April. This reading easily beat the market forecast of 54, marking the highest level of manufacturing expansion Switzerland has seen since July 2022.