Forex Euro Reacts to Fed Decision
The euro strengthened against both the dollar and yen but slipped versus the pound. Market sentiment was shaped by central bank rhetoric, notably from Joachim Nagel, President of the Bundesbank, who described the ECB’s policy as well-adapted and neutral. Nagel pointed to ongoing uncertainty from the Iran-Israel conflict, warning that a further escalation could send oil prices soaring and complicate inflation forecasts. He also expressed hope for positive U.S.-EU trade negotiations, emphasizing that current restrictions are harming both sides and that the White House should prioritize mutually beneficial partnerships.
United Kingdom: Pound Gains Broadly
The British pound advanced against the euro, dollar, and yen after the Bank of England voted 6–3 to keep rates at 4.25%. Recent data showing slowing consumer inflation and rapid services inflation (4.7% from 5.4%) have nudged the BoE towards a more dovish stance, though today’s decision was seen as appropriate amid progress in trade talks with the U.S.
Japan: Yen Retreats as Bond Market Faces Strain
The yen weakened across major pairs as Japan’s government unveiled new steps to stabilize its domestic bond market. Authorities announced a 10% reduction in the issuance of long-term Japanese government bonds (JGBs)—specifically 20-, 30-, and 40-year notes—amid flagging demand since May. Short-term JGB issuance, conversely, will be increased by ¥600 billion. This follows the Bank of Japan’s recent move to gradually slow the pace of its bond purchases starting in 2026.
Australia: Aussie Dollar Dips
The Australian dollar slipped against the yen, euro, greenback, and pound after the ABS reported May’s jobless rate steady at 4.1%. Full-time employment growth slowed sharply, while part-time jobs declined, prompting analysts to predict a –25bps rate cut to 3.60% at the July 8 RBA meeting. The labor force participation rate eased to 67.0%, and the employment-to-population ratio fell to 64.2%.
Oil: Prices Rally Amid Escalating Middle East Tensions
Oil futures surged toward $76.00 per barrel on growing fears that hostilities in the Middle East could disrupt tanker traffic through the Strait of Hormuz—a vital route for Asian crude imports. Freight rates have soared by 60% since the onset of conflict, now exceeding $46,000, as some shippers reroute or halt transits due to security concerns. Investor focus also turned to inventory data: API reported a fourth straight weekly draw of 10.133 million barrels, while EIA recorded an even steeper 11.473 million barrel decline, both reinforcing the current four-week tightening trend and fueling the latest price rally.