Dollar Up as Traders Shed Risk

Conflicting signals coming out of the latest U.S.-Iran negotiations are driving safe-haven demand for the Dollar as Vice President JD Vance stated yesterday that Iran had agreed to allow nuclear inspectors into the country as early as this week while Iranian officials refuted that there was any scheduled visit from the International Atomic Energy Agency (IAEA). Traders are also preparing for the release of the Federal Reserve’s preferred inflation gauge on Thursday in the Personal Consumption Expenditures (PCE) Index numbers for May, which is expected to show that inflation has accelerated slightly from the previous month. Chicago Fed President Austan Goolsbee also stated that he remains concerned with current inflation numbers and speculated whether temporary shocks are the only factors pushing them up. Traders are currently pricing in an interest rate hike for the U.S. as early as October.

EUR

The Euro is down against the Buck this morning after June Purchasing Managers Index (PMI) numbers showed a third consecutive month of contracting business activity across the Eurozone. That was driven by shrinking activity in the two largest constituent economies in Germany and France. The numbers follow some rare dovish-leaning comments from European Central Bank President Christine Lagarde where she argued that the ECB did not need a more forceful response to the Iran war, directly contrasting what we heard from new Federal Reserve Chair Kevin Warsh last week. That kind of commentary is significant after the ECB has spent the last several months endorsing the market’s hawkish bets. The Euro is at a 10-month low as a result. 

JPY

The Japanese Yen is up against the Greenback this morning but continues to trade near a 40-year low as Traders remain on alert for intervention. There is widespread concern that the Bank of Japan is not raising interest rates quickly enough to combat inflation or structurally stop the Yen’s fall. Meanwhile, Japanese Finance Minister Satsuki Katayama told reporters that she had spoken with U.S. Treasury Secretary Scott Bessent and that they had further aligned the two nations on foreign exchange policy and were prepared to take bold action where needed. Japanese authorities seem to be signaling that they are continuing to act in coordination with the U.S., as we saw earlier in the year, and that the bar for further intervention is low.