US dollar edges higher on Middle East concerns

Today’s headlines

What’s happening: The US dollar rose this morning as investors assessed the latest developments related to the Middle East conflict.

What happened: President Donald Trump announced strikes against Iran, after a US military helicopter was downed near the Strait of Hormuz.

Investors await key ‌inflation data from the US to get further insights into the Federal Reserve’s monetary policy outlook.

Why it matters: The US military launched strikes that it termed as “self-defence” against Iran, after Tehran shot down an American helicopter in the Strait of Hormuz, shattering hopes of the two counties reaching a longer-term peace deal.

Trump downplayed the incident, saying it was not a “big deal” and that the pilot was safe. Iran’s foreign minister Abbas Araghchi responded to the latest escalation by warning that the country’s armed forces would leave no threat unanswered.

While the US continued to talk about progress in the final negotiations with Iran, the ongoing blockade of Iranian ports continued, restricting trade.

Higher energy prices due to the ongoing conflict raised concerns over inflation, increasing speculations of a rate hike by the Federal Reserve.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 99.98 this morning.

The EUR/USD forex pair slipped to 1.1542, while the GBP/USD pair rose to 1.3379.

What to watch: Investors will continue monitoring developments related to the US-Iran conflict.

Data on US CPI (1630 UAE Time) will be released today, following last week’s upbeat job data. The annual inflation rate in the US, which rose to 3.8% in April, the highest level since May 2023, is expected to accelerate further to 4.2% in May.

Data on PPI, due to be released on Thursday, will also remain in focus. Producer prices in the US, which surged 1.4% in April, are expected to rise by 0.7% in May.

The markets today

Japan’s stocks in focus today ahead of some major economic reports

Context: Japan’s Nikkei 225 traded lower this morning as global market sentiment deteriorated after the US announced strikes against Iran.

Details: Japan’s stocks came under pressure this morning following the latest strikes by the US against Iran. Japanese equities mirrored the tech-led selloff on Wall Street on Tuesday.

Chipmakers and AI-related firms were among the worst performers this morning, with shares of Kioxia Holdings, SoftBank Group and Fujikura recording sharp losses. Tokyo Electron bucked the overall market trend, with the company’s shares surging to a new record high.

Data released this morning showed that Japan’s producer prices surged 6.3% year-over-year in May, accelerating from 5.3% in the previous month. The figure also came in higher than market estimates of 5.5%. This also marked the fastest annual growth in producer prices since March 2023, signalling persistent cost pressures, mainly due to surging energy prices following disruptions stemming from the US-Iran conflict.

Data released on Tuesday showed that Japan’s machine tool orders rose by 37.4% year-over-year to ¥176.88 billion in May, easing from a more than four-year high of 45.1% in April.

Japan’s Nikkei 225 dipped more than 1% to 64,748.44 this morning, while the TOPIX declined 0.75% to 3,867.00.

Meanwhile, the USD/JPY forex pair edged higher to 160.36 this morning.

What to watch: Investors will continue monitoring developments related to the US-Iran conflict.

Data on BSI large manufacturing (0350 UAE Time), foreign bond investment (0350 UAE Time) and stock investment by foreigners (0350 UAE Time) from Japan will be released today. Japan’s business survey index for large manufacturers, which declined to 3.8% in the first quarter from 4.7% in the previous quarter, is expected to rise to 4.2% in the second quarter.

The Bank of Japan will also announce its policy decision on June 16, with investors expecting the policymakers to hike rates by 25 bps.

Other Markets: European indices closed mostly lower on Tuesday, with the FTSE 100, DAX 40 and STOXX Europe 600 Index down by 1.41%, 0.74% and 0.50%, respectively, and the CAC 40 up by 0.05%.

The news shaping the markets

A car bomb in the Moscow region killed a Russian ammunition chief. The news sent the USD/RUB pair higher in forex trading this morning.

Indonesia’s new car sales rose 14.0% year-over-year to 69,219 units in May following a 55.0% jump in the previous month. This being the second consecutive month of growth exerted pressure on the USD/IDR forex pair.

Argentina’s industrial production declined 2.8% year-over-year in April following a 5% gain in the previous month, which sent the USD/ARS pair higher in forex trading this morning.

Saudi Arabia’s economy grew by 3.0% year-over-year in the first quarter. The figure coming in higher than a preliminary reading of 2.8% exerted pressure on the USD/SAR forex pair.

Canada’s trade surplus widened to C$2.7 billion in April, from C$1.8 billion in the previous month. However, the USD/CAD pair rose in forex trading this morning.

What else to watch today

Italy’s industrial production (1200 UAE Time), US MBA mortgage applications (1500 UAE Time), EIA crude oil stocks change (1830 UAE Time), EIA gasoline stocks change (1830 UAE Time), EIA Cushing crude oil stocks (1830 UAE Time), EIA heating oil stocks change (1830 UAE Time) and monthly budget statement (2200 UAE Time), Bank of Canada’s interest rate decision (1745 UAE Time) as well as Russia’s inflation rate (2000 UAE Time).