Market sentiment stays mostly negative on Thursday, driven by rising geopolitical tensions and doubts about the US-China trade deal. While US and Chinese officials agreed on a basic framework, the deal lacked new details, with China offering magnet and rare-earth licenses to US companies and the US holding off on further tariff hikes. This raised doubts about President Trump’s ability to finalize trade deals with China.
Geopolitical concerns also escalated with reports that Israel is ready to launch an operation into Iran, adding to the risk-off mood. The US also began evacuating diplomats and military personnel from Iraq, Kuwait, and Bahrain, further heightening tensions. Meanwhile, rumors emerged about a potential meeting between the US and Iran on Sunday for nuclear talks.
On the economic front, the US Consumer Price Index (CPI) showed softer inflation for the fourth month in a row, boosting expectations for a Fed rate cut. This, combined with uncertainties around the US-China trade deal and escalating geopolitical tensions, weighed on the US dollar.
As a result, the US Dollar Index (DXY) fell to its lowest in seven weeks, supporting gold prices and pushing crude oil to its biggest daily jump in two months before retreating. Bond yields dropped and equities fell, despite a slight recovery late Wednesday.
In currency markets, EURUSD hit a seven-week high, continuing its four-day uptrend, despite mixed ECB commentary. GBPUSD defended the previous day’s recovery, even with mixed UK data. Meanwhile, AUDUSD remains pressured due to RBA concerns and the pair’s risk-barometer status, NZDUSD stayed neutral, and USDCAD dropped due to higher crude oil prices and improved prospects for the US-Canada trade deal. Moving on, USDJPY drops on mixed BoJ rate hike concerns and no major updates in US-Japan trade talks. Bitcoin (BTCUSD) and Ethereum (ETHUSD) extended their losses due to broad market caution and a lack of positive news in the industry.
EURUSD climbed to its highest level since late April, boosted by a weaker US dollar, despite ECB officials hinting at a pause in rate cuts due to inflation concerns and US tariff-related uncertainty. While ECB President Lagarde and PBoC Governor Pan signed a central bank cooperation MoU, the news, along with slow-moving EU-China and EU-US trade talks, failed to make waves. This could be confirmed with a news report stating that the EU now aims to push US trade talks beyond Trump’s July deadline.
Meanwhile, USDJPY fell for the second day as Japan’s PM Ishiba reported “steady progress” in US trade talks. Despite weak Q2 2025 business data and expectations that the BoJ will hold rates and slow bond tapering, the yen stayed strong on safe-haven demand and broad USD softness.
GBP/USD held onto Wednesday’s recovery despite soft UK house price data and mostly softer manufacturing and growth figures. A weaker US dollar and concerns over UK trade talks with the EU, US, and China supported the pair, even as no major breakthroughs emerged. BoE officials have struggled to boost market confidence, but traders remained upbeat, fueled by the confirmation of a bullish “Cup and Handle” pattern in late May.
AUDUSD extends its decline for a second day, despite Australia’s inflation expectations jumping to 5% in June from 4.1% in May. The drop is driven by the RBA’s dovish outlook and the pair’s sensitivity to global risk sentiment, even as the US dollar softens. Westpac now expects RBA rate cuts in August and November 2025, and again in early 2026.
Meanwhile, USDCAD remains near weekly lows, pressured by rising crude oil prices—Canada’s key export—and talks about a potential US-Canada economic and security deal. However, a dovish Bank of Canada outlook and weak April building permits data (-6.6% vs 2.0% expected) limit further CAD gains.
Crude oil prices surged to their biggest daily gain in two months, driven by escalating geopolitical tensions in the Middle East, a larger-than-expected draw in US crude inventories, and doubts about the US-Iran trade deal, fueled by Trump’s social media comments. This pushed oil prices through a five-month-old resistance line, although market consolidation later pared some of those gains early Thursday. It should be noted that Fitch has cut its oil price estimate to $65 a barrel from $70 and the same seems to test the Crude Oil buyers amid the mixed markets of late.
Gold, benefiting from its safe-haven appeal and a softer US dollar, continued to climb, boosted by Fed dovish expectations and rising concerns over Middle East instability. Additionally, record gold purchases by global central banks and uncertainty around the US trade deal added momentum, pushing XAU/USD to its weekly peak.
Bitcoin (BTC/USD) and Ethereum (ETH/USD) remain under pressure despite a softer US dollar, weighed down by rising geopolitical uncertainty, doubts over the US-China trade deal, and recent crypto ETF outflows. Bitcoin is on a three-day losing streak, reversing its early-week rally, while Ethereum continues its pullback from key resistance.
After heightened volatility, driven by US-related trade and geopolitical news, along with inflation data and the UK’s data dump, market participants will focus on the US weekly jobless claims, producer price index (PPI), and speeches from ECB officials for clearer direction. While these figures are unlikely to boost the US Dollar, they may support EURUSD and GBPUSD in maintaining their recoveries.
However, headlines around the US-China trade deal, US-Iran nuclear talks, and potential Israeli action on Iran will be key market movers. If these headlines signal reduced risk-off sentiment, the US Dollar could trim some of its recent gains, especially if PPI exceeds expectations. This would likely test the recent highs in gold and crude oil prices and help the Antipodean currencies recover some losses. On the flip side, any more negative risk news could extend the recent trends, pushing gold and crude oil higher while pulling back crypto, equities, and bond yields.
May the trading luck be with you!
