Risk sentiment stays subdued early Friday as traders remain defensive ahead of the U.S. Nonfarm Payrolls (NFP) release. Ongoing geopolitical stress around Iran, firmer U.S. data prints, and persistently hawkish Federal Reserve (Fed) commentary continue to cap risk appetite.
Tensions flared again around the Strait of Hormuz after fresh military exchanges tested the fragile ceasefire between the U.S. and Iran. Reports indicated Iranian forces used missiles, drones, and fast attack boats against three U.S. Navy destroyers passing through the key shipping lane, prompting U.S. retaliatory strikes on Bandar Abbas and Qeshm Island.
Even as the situation escalated, Washington maintained that the confrontation did not amount to a formal return to war. Donald Trump described the response as a “love tap” and confirmed that diplomatic talks with Iran remain active. He also noted that Pakistan urged the U.S. to avoid moving ahead with “Project Freedom” during ongoing negotiations. Trump is scheduled to address markets later at 1600 GMT.
The U.S. Central Command (CENTCOM) said USS Truxtun, USS Rafael Peralta, and USS Mason were targeted while transiting toward the Gulf of Oman, with the U.S. response focused on Iranian missile systems, drone facilities, and surveillance infrastructure.
Although later updates from Iran and Israel suggested a temporary easing in hostilities, uncertainty over the situation and tanker routes through the Strait of Hormuz kept markets on edge. Additional support for regional logistics came after Saudi Arabia and Kuwait reportedly lifted restrictions on U.S. military use of bases and airspace tied to operations in the area.
On the policy front, a U.S. trade court struck down Donald Trump’s proposed 10% global tariffs in a 2-1 ruling, saying the measures were not justified under a 1970s trade law.
Economic data from the U.S. showed mixed momentum. Initial jobless claims came in at 200K versus 205K expected, while first-quarter (Q1) productivity fell 0.8%, missing forecasts. Unit labor costs rose 2.3%, below expectations, and March construction spending increased 0.6%, beating estimates.
The NY Fed survey showed one-year inflation expectations rising to 3.6% from 3.4%, while five-year expectations held steady at 3%.
Fed officials largely maintained a cautious, hawkish stance. Cleveland Fed President Beth Hammack warned of elevated uncertainty and said rates may need to remain restrictive for longer. San Francisco Fed President Mary Daly emphasized that higher oil prices and geopolitical risks could complicate progress toward the 2% inflation goal. New York Fed President John Williams took a more balanced tone, highlighting resilience in the economy and labor market but avoiding any signal of imminent easing.
In currency and commodity markets, the U.S. Dollar Index (DXY) gave back part of its prior rebound but remains on track for a second straight weekly loss. Gold is heading for its first weekly gain in three weeks, while crude oil reversed Thursday’s recovery attempt.
EURUSD and GBPUSD posted modest gains, while USDJPY remained under pressure. AUDUSD and NZDUSD are set for a second weekly rise, whereas USDCAD edges toward its first weekly gain in five weeks despite mild intraday weakness.
In crypto, Bitcoin (BTC) extended losses into a second session, while Ethereum (ETH) continued its three-day decline. Asia-Pacific equities also traded lower, tracking Wall Street weakness, though still holding strong weekly gains overall.
EURUSD and GBPUSD benefit from the U.S. Dollar pullback and are set for weekly gains, despite weaker domestic updates. USDJPY stays under pressure on the day due to Japan intervention risks and BOJ hawkish expectations, though weekly losses remain limited because of reduced trading during Japan’s three-day holiday.
Donald Trump said he had a constructive call with European Commission President Ursula von der Leyen, agreeing to extend the EU trade deadline to July 4. He also warned tariffs could rise sharply without a deal and reaffirmed U.S.-Europe alignment on blocking Iran’s nuclear ambitions.
ECB Executive Board member Isabel Schnabel kept a hawkish tone, warning that the Iran conflict may cause lasting economic damage through higher energy costs, disrupted supply chains, and rising inflation expectations, while cautioning against delayed policy action on wages.
In Japan, Reuters reported repeated forex intervention during the May holidays, with BOJ data pointing to about $67 billion spent supporting the yen in under a week. Real wages rose 1.0% in March for a third straight gain, but cash earnings at 2.7% missed forecasts. Services PMI dropped to 51.0, an 11-month low, as input inflation hit a 42-month high. Focus now shifts to the June 15-16 BOJ meeting.
In the UK, Reform UK gained over 90 seats in local elections, while Labour and Conservatives lost more than 70 and 20 seats respectively, increasing political pressure on Prime Minister Keir Starmer and adding uncertainty for sterling.
AUDUSD and NZDUSD post intraday gains, supported by a softer U.S. Dollar, while USDCAD slips for the first time in three sessions. Even so, AUDUSD and NZDUSD remain on track for a second straight weekly rise, whereas USDCAD is still set for its first weekly gain in five weeks.
Weaker crude oil, a key Canadian export, alongside cautious market sentiment, has weighed on USDCAD. At the same time, the broader U.S. Dollar pullback has helped AUDUSD and NZDUSD edge higher.
Gold’s outlook is supported by uncertainty around Iran and a softer U.S. Dollar, even as U.S. data stays firm and Fed bias remains hawkish, putting XAUUSD on track for its first weekly gain in three weeks. Concerns over a possible miss in the U.S. NFP, along with mixed reports of U.S. and UAE strikes on Iran while Israel steps back, are helping keep buyers engaged after a two-month decline. Additional support comes from strong central bank buying and steady physical demand, while traders now focus on the U.S. jobs report, Trump’s comments on Iran, and updates on tariff developments.
WTI crude oil reverses the prior day’s bounce from a two-week low and heads toward its first weekly loss in three weeks, as markets price in a potential de-escalation in the Iran conflict despite renewed tensions.
In crypto, Bitcoin (BTC) and Ethereum (ETH) extend losses amid a cautious risk backdrop. Asia-Pacific equities also trade more weakly, tracking the negative tone from Wall Street.
On Wall Street, earlier record highs driven by hopes of U.S.-Iran de-escalation faded quickly. The S&P 500 fell 0.38% to 7,337.11, the Nasdaq Composite slipped 0.13% to 25,806.20, and the Dow Jones Industrial Average dropped 313.62 points, or 0.63%, to 49,596.97.
Weakness was broad-based, with Amazon, Broadcom, and Micron dragging the S&P 500 lower. The Dow was pressured by Caterpillar and JPMorgan, while the Russell 2000 fell 1.74% as industrials, energy, and healthcare stocks weakened.
Earnings were mixed: Datadog surged 28%, and Fortinet gained 15%, but Shake Shack plunged nearly 30%, standing out as one of the sharpest declines of the session.
Friday’s focus stays on the U.S. Employment Report (April NFP), alongside ECB President Christine Lagarde’s speech, Canada Jobs data, preliminary UoM Michigan Consumer Sentiment (May), and remarks from mid-tier ECB and Fed officials. At the same time, markets remain highly sensitive to developments around the U.S.–Iran conflict after a fresh escalation in the Middle East. Trump is also scheduled to speak at 1600 GMT, with the White House not disclosing the topic.
Early signals suggest the U.S. jobs report and sentiment data could reverse the recent U.S. Dollar pullback, unless NFP disappoints and risk appetite improves. A stronger outcome would likely pressure major currency pairs and cryptocurrencies to trim weekly gains, while gold is expected to stay supported. Crude oil may remain under pressure unless new supply disruptions emerge, especially given signs of resumed flows through the Strait of Hormuz. Equities could finish the week on a softer note, while AUD and NZD may struggle to maintain recent gains.
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