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The U.S. dollar started the North American session on the defensive but ended the day mixed, falling against the EUR, GBP, CHF, and AUD while gaining versus the CAD, JPY, and NZD.
Improving sentiment in the Middle East weighed on the greenback as investors embraced a more risk-friendly tone following reports that the United States and Iran have reached a framework peace agreement that is expected to be formally signed on Friday. According to President Trump, the agreement includes the reopening of the Strait of Hormuz, the lifting of the U.S. naval blockade of Iran, a commitment that Iran will not possess a nuclear weapon, and strict enforcement mechanisms. Additional details are expected later this week.
With geopolitical tensions easing, market attention is shifting toward a busy week for central banks. The Federal Reserve is expected to leave rates unchanged when it announces its decision on Wednesday, but investors will be focused on Fed Chair Kevin Warsh’s first meeting at the helm and any clues regarding the future policy bias.
Before the Fed decision, the Bank of Japan is widely expected to raise its policy rate by 25 basis points to 1.00% from 0.75%. Market pricing and economist surveys strongly favor a hike as inflation pressures continue to prove more persistent. The BoJ’s April meeting featured a hawkish 6-3 vote split, with three members already favoring an immediate rate increase. Since then, inflation forecasts have moved higher and policymakers have expressed growing concern about upside inflation risks.
Markets will also be watching for guidance on bond purchases. The expectation is that the BoJ may signal a slower pace of bond-buying tapering beginning in fiscal 2027 while leaving the door open for additional rate hikes later this year. Current market pricing points to rates reaching approximately 1.25% by the fourth quarter. With Governor Kazuo Ueda sidelined due to hospitalization, Deputy Governor Shinichi Uchida is expected to lead the post-meeting press conference.
Elsewhere, the Reserve Bank of Australia is expected to leave rates unchanged when it announces its decision Tuesday evening U.S. time. On Thursday, both the Swiss National Bank and the Bank of England are also expected to maintain current policy settings.
Economic data released today was mixed. The June Empire State Manufacturing Index fell to 5.7 from 19.6 in May, well below the 14.0 estimate. While the reading remains in expansion territory, it signals a significant slowdown in manufacturing activity in the New York region. New orders and employment remained positive, but growth momentum weakened and price pressures persisted.
Industrial production rose 0.1% in May, below expectations for a 0.2% increase. Manufacturing output was unchanged following a strong 0.7% gain in April, suggesting industrial activity continues to expand but at a more modest pace. Strength in mining and AI-related technology production helped offset softer areas of manufacturing, while capacity utilization edged higher to 76.2%.
Housing data was also softer than expected. The NAHB Housing Market Index fell to 35 in June from 37 in May, missing expectations. Elevated mortgage rates, affordability concerns, and higher construction costs continue to weigh on builder confidence. Sentiment has now remained below the key 50 level for more than two years, with many builders increasingly relying on incentives and price reductions to attract buyers.
U.S. equities rallied sharply as investors welcomed the easing of Middle East tensions. The Nasdaq led the advance, climbing more than 3%.
• Dow Jones Industrial Average: 51,676.18, +469.07 points (+0.92%) — a new record close
• S&P 500: 7,554.28, +122.83 points (+1.65%) — within reach of the record close of 7,609.77 set on June 2
• Nasdaq Composite: 26,683.94, +795.10 points (+3.07%) — still below its record close of 27,093.90
U.S. Treasury yields were mixed, with shorter maturities modestly lower and longer-term yields moving higher:
• 2-year: 4.070%, -1.4 basis points
• 5-year: 4.193%, -1.7 basis points
• 10-year: 4.475%, -1.0 basis points
• 30-year: 4.976%, +3.5 basis points
In commodities, crude oil fell sharply as geopolitical risk premiums were reduced. WTI crude declined $3.54, or 4.17%, to $81.34 after trading as low as $79.70 before rebounding.
Precious metals moved higher, benefiting from lower short-term yields and ongoing demand for hard assets:
• Gold: +$91 (+2.15%) to $4,309
• Silver: +$1.90 (+2.82%) to $69.93
This article was written by Greg Michalowski at investinglive.com.