On Thursday, both the Euro (EUR) and British Pound (GBP) registered gains against the US Dollar (USD) following news of a ceasefire agreement between Israel and Lebanon, which lifted risk appetite and reduced safe-haven demand for the Greenback [1][2]. The EUR/USD pair traded around 1.1625, up 0.25% on the day, while GBP/USD rose over 0.16%, reaching 1.3439 after bouncing off daily highs of 1.3462 [1][2]. However, headlines that Hezbollah rejected the ceasefire plan triggered a retracement in GBP/USD, and hostilities continued with Israel attacking southern Lebanon, although Israeli forces began withdrawing from Dibbin [2]. Iran reiterated that a ceasefire in Lebanon is crucial for advancing peace talks with the US [2].
The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, fell 0.20% to 99.34 according to [1], and 0.21% to 99.34 according to [2], reflecting a consistent decline across both sources. Oil prices showed mixed signals: Source 1 reported a recent rise in crude oil prices fueling inflation concerns, while Source 2 noted a 3.3% slump in West Texas Intermediate (WTI) to $93.04, which acted as a headwind for the USD [1][2]. The surge in oil prices has raised stagflation risks in the Eurozone, potentially challenging expectations for additional ECB rate hikes, while a quick resolution of the Middle East conflict could ease inflationary pressures [1][2].
Labor market data released Thursday showed US weekly Initial Jobless Claims rose to 225K from 212K, exceeding market expectations of 213K [1][2]. The 4-week average stood at 214.75K, nearly 5K above the previous reading of 208.25K, and Challenger Job Cuts in May increased from 83.387K to 97.006K, with nearly 39% in the technology sector—a 16% rise from April [2]. Despite these figures, the labor market is described as stable, with traders awaiting Friday's Nonfarm Payrolls report for May, expected to show an addition of 85K jobs and an unemployment rate of 4.3% [2].
In the UK, political turmoil surrounds Prime Minister Keir Starmer, with his party considering replacement following local election results [2]. Bank of England (BoE) policymakers have been supportive of Sterling, with Governor Andrew Bailey stating that inflation would be at the 2% target if not for events in the Persian Gulf, and MPC member Megan Greene seeing a growing case for a rate hike [2]. Money markets are pricing in approximately 47 basis points of BoE rate increases in 2026, implying expectations for at least two rate hikes [2]. Meanwhile, the Euro is struggling to draw meaningful support from expectations that the European Central Bank (ECB) could resume raising interest rates, with markets fully pricing in a rate hike at next week's meeting and expecting at least two additional increases by year-end [1].
Negotiations between the US and Iran remain stalled, with major issues unresolved, including Iran's nuclear program, sanctions relief, frozen assets, and the future status of the Strait of Hormuz. Iran's Foreign Minister Abbas Araghchi stated that "no tangible progress has been made" [1]. This lack of progress is limiting deeper losses in the US Dollar, while expectations that the Federal Reserve may keep interest rates higher for longer continue to provide underlying support for the Greenback [1].
CONCLUSION
The Euro and Pound gained against the US Dollar as Middle East ceasefire news improved risk sentiment, though ongoing hostilities and mixed oil price signals tempered market optimism. Labor data and central bank commentary suggest continued uncertainty, with traders awaiting key US employment figures and central bank decisions. Overall, the market impact is medium, with currency moves reflecting both geopolitical developments and economic data.