The euro fell in European trade on Friday on track for the first loss in five sessions against the dollar, giving up four-year highs on profit-taking amid mounting risk aversion due to geopolitical tensions in the Middle East. 

Despite the losses, the euro is heading for the second weekly profit in a row as the odds of a July European rate cut receded, while recent US inflation data boosted the odds of two Fed rate cuts this year.

The Price

The EUR/USD fell 0.6% today to $1.1511, with a session-high at $1.1614.

The euro closed 0.8% higher on Thursday against the dollar, the fourth profitt in a row, hitting a four-year peak at $1.1641 following US inflation data.

Geopolitical Tensions 

Israel launched a heavy military operation against Iran, targeting nuclear facilities and ballistic missile factories and military leaders.

The Israeli army said the operation aims at preventing Tehran from developing a nuclear weapon and described it as the start of a long-term military operation, with Israel's air space closed in preparation for Iranian responses.

The US administration started to transport some of its personnel from several Middle Eastern countries and warned from heightened security risks, while spreading  additional air defense systems to protect US military bases in the region.

Weekly Trades

The euro is 1.1% higher so far this week against the dollar, on track for the second weekly profit in a row.

ECB President Christine Lagarde hinted at the possible end of the current cycle of policy easing, which was in response to a combined shock such as the Covid 19 pandemic, the Ukrainian war, and the energy crisis.

According to a Reuters source, most ECB members now aim at holding interest rates unchanged in July, with the global markets now expecting just an additional 25 basis points of rate cuts by the end of the year. 

The odds of a 0.25% ECB rate cut in July now stood below 30%, with traders awaiting more eurozone data and remarks by ECB officials to gather more clues. 

US Rates

Recent data showed US inflation rose less than expected in May, with limited effects so far for Trump’s tariffs on prices.

Following the data, traders raised their estimates for a Federal Reserve rate cut in September.

The markets now see an 80% chance of a Fed rate cut in September, with a second cut in October. 

Oil prices surged 13% on Friday and extended the gains for the third straight profit, hitting a five-month high after Israel launched a massive air strike against Iran.

Iran is expected to retaliate quickly, in turn raising tensions in the Middle East, a major oil producing region. 

Prices

US crude rallied 13% to $77.57 a barrel, the highest since January 20, with a session-low at $68.52.

Brent rose 11% to $78.45 a barrel, the highest since January 27, with a session-low at $70.78.

On Wednesday, US crude rose 0.9%, while Brent added 0.1% amid mounting geopolitical tensions in the Middle East.

Israel’s Strike Against Iran

Israel launched a heavy military operation against Iran, targeting nuclear facilities and ballistic missile factories and military leaders.

The Israeli army said the operation aims at preventing Tehran from developing a nuclear weapon and described it as the start of a long-term military operation, with Israel's air space closed in preparation for Iranian responses.

US officials asserted that America hasn’t participated or supported the operation.

The US administration started to transport some of its personnel from several Middle Eastern countries and warned from heightened security risks, while spreading  additional air defense systems to protect US military bases in the region.

The attack could threaten oil supplies in the region, especially from Iran, driving up prices and drying up the market. 

The yen rallied on Friday against a basket of major rivals, extending the gains for the third straight session against the dollar and hitting a week on haven demand after Israel launched air strikes against Iran.

The Bank of Japan is convening next week to discuss latest economic policies, with a less than 50% chance of a 0.25% rate hike.

The Price

The USD/JPY price fell 0.5% today to 142.79 yen per dollar, a week low, with a session-high at 143.52.

The yen rose 0.75% on Thursday against the dollar, marking the second profit in a row on haven demand following downbeat US producer prices data.

Weekly Trades

The yen is up 1.4% so far this week against the dollar, on track for the first weekly profit in three weeks.

Israel’s Strike Against Iran

Israel launched a heavy military operation against Iran, targeting nuclear facilities and ballistic missile factories and military leaders.

The Israeli army said the operation aims at preventing Tehran from developing a nuclear weapon and described it as the start of a long-term military operation, with Israel's air space closed in preparation for Iranian responses.

US officials asserted that America hasn’t participated or supported the operation.

The US administration started to transport some of its personnel from several Middle Eastern countries and warned from heightened security risks, while spreading  additional air defense systems to protect US military bases in the region.

Japanese Rates

The Bank of Japan is meeting on June 16-17 to discuss the latest economic developments and suitable policies.

Following recent GDP growth data, the odds of a Bank of Japan 0.25% interest rate hike in June rose from 40% to 45%.

Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.

Now traders await more Japanese data on inflation, unemployment, and wages to gather additional clues.

Most cryptocurrencies fell on Thursday amid a weaker risk appetite due to mounting geopolitical tensions. 

Reuters sources indicated Israel is considering a military attack against Iran in days without waiting for US support. 

US President Trump commented on the news by saying such an attack is very possible, adding that Iran shouldn’t be allowed to have a nuclear weapon.

Trump also said he’s willing to extend the final July 8 deadline to carry on trade talks, but warned that the US will send messages in the next few weeks to tens of countries to set trade terms.

Earlier US data showed producer prices rose 2.6% y/y in May, beating estimates of 2.5%.

US unemployment claims came at 248 thousand in the week ending June 7, same as the previous week, and up from estimates of 246 thousand.

Following the data, Trump renewed his attacks on Fed Chair Jerome Powell and called him a fool, but said once more he won’t fire him.

Ethereum 

On trading, ethereum fell 3.7% as of 21:11 GMT on Coinmarketcap to $2697.6.