US dollar extends rally as geopolitical tensions weigh on markets

The US Dollar strengthened further on Friday, building on its weekly gains against major currencies as investors remained cautious amid growing geopolitical uncertainty in the Middle East.

With US financial markets closed for the Juneteenth holiday and limited economic data on the calendar, market participants focused on developments surrounding US-Iran relations and comments from central bank officials.

US-Iran talks called off

Risk sentiment deteriorated after Switzerland's Foreign Ministry announced that upcoming talks between the United States and Iran would not take place as scheduled.

No official explanation was provided by the US administration.

However, the cancellation came after US Vice President JD Vance reportedly scrapped a planned trip following Israel's attack in southern Lebanon.

Iran's semi-official Tasnim news agency reported that there was no confirmation that Iranian negotiators would travel for the talks.

The uncertainty surrounding the diplomatic process contributed to a risk-averse market environment, supporting demand for the US Dollar.

Dollar index reaches highest level

Following two consecutive days of gains, the US Dollar Index continued its upward momentum on Friday.

The index climbed above 101.10 during early trading, marking its highest level since May 2025.

At the time of reporting, the index was trading around 100.90, maintaining modest gains on the day.

With US stock and bond markets closed, currency markets remained particularly sensitive to geopolitical headlines and broader risk sentiment.

Pound remains under pressure

The British Pound continued to weaken against the Dollar after the Bank of England left its bank rate unchanged at 3.75% at its June meeting, in line with market expectations.

The decision was not unanimous.

Two members of the Monetary Policy Committee voted in favour of a 25-basis-point rate increase.

Despite the split vote, GBP/USD remained under pressure, losing around 0.7% on Thursday.

The pair struggled to recover on Friday and traded near 1.3200.

Political developments also weighed on Sterling.

Euro falls despite hawkish ECB remarks

The Euro also remained weak against the Dollar, with EUR/USD trading near 1.1450, its lowest level since mid-March.

European Central Bank policymaker José Luis Escrivá delivered comments that were interpreted as relatively hawkish.

His remarks highlighted the risk that higher energy costs could spread into services and transport sectors, potentially creating upward pressure on inflation across the euro area.

Escrivá also pointed to uncertainty surrounding oil production recovery and future oil prices, factors that could complicate the inflation outlook.

Japanese yen weakens despite rate-hike signals

The Japanese Yen continued to underperform against the Dollar.

USD/JPY climbed above 161.80 on Thursday, reaching its highest level since July 2024.

Although the pair edged slightly lower on Friday, it remained comfortably above the 161.00 level as traders monitored the possibility of official intervention.

Bank of Japan Deputy Governor Shinichi Himino said the central bank would likely continue raising interest rates based on developments in the economy, prices, and financial conditions.

Himino also noted that currency movements could influence inflation expectations and core inflation, adding that policymakers would continue to closely monitor market developments.

Overall, heightened geopolitical uncertainty and risk aversion continued to support the US Dollar, while major currencies, including the Euro, Pound, and Yen, remained under pressure heading into the weekend.