The euro slid after the European Central Bank left its policy rate unchanged as soaring oil prices amid escalating Middle East tensions and a selloff in technology shares fueled haven buying of the dollar. First-time U.S. jobless claims unexpectedly fell last week to their lowest level since the 1960s, signaling continued labor market resilience ahead of next week's Fed meeting. U.S. President Donald Trump said he is seriously considering renewed major combat operations against Iran and would hold Tehran responsible for any attacks by Yemen's Houthis. Trump also said a civil nuclear deal between the U.S. and Saudi Arabia is conditional on Riyadh joining the Abraham Accords normalizing relations with Israel. Yemen's Houthis said earlier on Thursday that they had carried out a military operation targeting two Saudi oil tankers. Additionally, Iran's Revolutionary Guards warned that the southern Strait of Hormuz shipping route has been mined. The European Central Bank, after leaving rates unchanged, kept the door open to a September hike as Middle East tensions cloud the energy outlook. ECB President Christine Lagarde said policymakers may discuss raising banks' minimum reserve requirements. Tech shares were pressured after Alphabet's first-ever cash burn and prospect of greater AI scrutiny after OpenAI's rogue incident. DXY surged to a three-week high, reaching its 101.54 upper Bollinger amid model-driven FX and fixed-income buying before trimming gains as tech shares retreated.
Option demand for dollar upside has risen, pushing one-month risk reversals to a 0.28% premium for the greenback, while the one-year tenor is approaching the 0.48% YTD high recorded in late June. EUR/USD remained under pressure below 1.14 as broad USD strength, rising yields, lower gold and a falling RSI suggest further downside toward its 1.1325 year-to-date low.
GBP/USD fell below its 21-day moving average of 1.3359 and remained biased lower amid dollar haven demand and a bearish pattern of lower highs and lower lows. USD/JPY surged above 163.50, with strong dollar demand, higher yields and geopolitical tensions keeping the bias bullish despite near-overbought conditions around the key 164.00 level. AUD/USD remains vulnerable after breaking below its 10-DMA, with broad USD strength and bearish technical signals suggesting downside risks remain.
Treasury yields were up 1 to 6 basis points as the curve flattened, with the ten-year yield reaching a new 18-mo. high of 4.713%. The 2s-10s curve was down about 1 basis point to +33.7bp.
The S&P 500 fell 1.35% on weakness in consumer and tech shares.
WTI oil surged over 6% to its highest level since June 11.
Gold fell about 2% while copper dropped 2.6% as yields and the dollar advanced.
Heading toward the close: EUR/USD -0.32%, USD/JPY +0.41%, GBP/USD -0.46%, AUD/USD +0.41%, DXY +0.33%, EUR/JPY +0.09%, GBP/JPY -0.05%, AUD/JPY -0.04%.(Editing by Burton Frierson Robert Fullem is a Reuters market analyst. The views expressed are his own)
