Dollar Climbs to 101.29 as Oil Spike Fuels Haven Demand

The Dollar Index rose 0.37% to 101.29 as haven demand swept through markets. WTI crude jumped 7.82% and Brent added 1.35% on escalating US-Iran tensions — President Trump said he is "considering a massive attack greater than anything before," and the Senate blocked a resolution curbing his Iran War Powers. Treasury yields rose across the curve: the 10-year added 4.6bp to 4.703%, the 5-year 5.2bp to 4.459%, the 3-month 5.2bp to 3.797%, and the 30-year 2.6bp to 5.173%. Equities sold off hard — the S&P 500 fell 1.45%, the Nasdaq 2.83%, and the VIX jumped 7.43% — while US jobless claims printed 187K against a 212K forecast, a stronger labor read than expected.

The Fed funds target sits at 3.50-3.75%; the live 2026 debate is whether the Fed hikes further, not whether it cuts. Thursday's jobless claims beat (187K versus a 212K forecast) added to that hawkish tilt, alongside the yield moves above. The Wall Street Journal's Timiraos wrote the Fed is heading into "one of the most unpredictable meetings." Separately, 30-year mortgage rates reached their highest level since August 2025, a headline that underscores how the recent yield rise is already reaching household borrowing costs even before that meeting.

EUR/USD fell 0.35% to 1.1372 after the ECB left its three key rates unchanged Thursday (deposit facility 2.25%, main refinancing 2.40%, marginal lending 2.65%), as expected; the euro reversed from a firmer intraday level as the dollar strengthened into the close. GBP/USD fell 0.46% to 1.3314 — covered below. USD/JPY rose 0.42% to 163.84, with the yen still pinned near four-decade lows even as BoJ officials are reportedly open to a faster pace of rate hikes, per Bloomberg. USD/CAD was little changed, -0.04% to 1.4081, as oil-linked support for the loonie offset broad dollar strength; Canada's May retail sales rose 1.0%, matching the 1.0% consensus.

GBP/USD fell 0.46% to 1.3314, with broader reporting describing sterling consolidating losses below 1.3400. The move came as Chancellor of the Exchequer John Healey flagged rising business costs and cost-of-living pressures, while PM Andy Burnham confirmed cutting VAT on household electricity bills from 5% to 0% from October, funded by scrapping the Digital ID programme. UK gilt yields rose on the spending news, and that fiscal jitteriness combined with broad dollar demand from the oil-driven Middle East tensions to outweigh a still-hawkish Bank of England backdrop, where Governor Andrew Bailey has said rate cuts are "off the table at the moment" and Bank Rate sits at 3.75%. Next up: UK Retail Sales (forecast -0.3% versus 1.2% previous) and flash Manufacturing (forecast 52.0 versus 53.1) and Services PMIs (forecast 49.4 versus 48.7).

German GfK Consumer Climate (forecast -28.7, previous -29.2) and UK Retail Sales m/m (forecast -0.3%, previous 1.2%) at 16:00; French flash Manufacturing (forecast 51.0) and Services PMIs (forecast 47.5) at 17:15; German flash Manufacturing (forecast 50.4) and Services PMIs (forecast 49.0) at 17:30; Eurozone flash Manufacturing (forecast 51.5) and Services PMIs (forecast 49.8) at 18:00; UK flash Manufacturing (forecast 52.0, previous 53.1) and Services PMIs (forecast 49.4, previous 48.7) at 18:30. Later: Canadian IPPI, NHPI and RMPI at 22:30; US flash Manufacturing (forecast 54.4, previous 55.7) and Services PMIs (forecast 51.3) at 23:45; and US New Home Sales (forecast 609K, previous 580K) at 00:00.