Rising tensions in the Middle East and stronger US data push the USD higher while oil prices and Treasury yields rise.
The US dollar firmed on Wednesday as geopolitical risks escalated, lifting oil prices and Treasury yields. The May ISM services index rose to 54.5, exceeding the 53.8 estimate, while ADP employment data showed a gain of 122K jobs, above the 117K forecast. Reports of Iran targeting a US military ship in the Gulf of Oman added to market unease, with WTI crude oil climbing $2.27 to $96.03 before settling at $96.17.
US 10-year yields increased by 3.4 bps to 4.49%, reflecting concerns over persistent inflation and rising oil prices. The S&P 500 and Nasdaq declined 0.6% and 0.8%, respectively, as the AI trade showed signs of weakening. Gold fell $41 to $4444, while USD/JPY surged past 160.00, a level that may prompt intervention by Japanese authorities.
Earlier expectations of a US-Iran deal have faded, contributing to heightened risk aversion. The Fed’s Beige Book noted slight-to-moderate US growth, while factory orders for April rose 4.8%, slightly above the 4.6% estimate. Canada’s Q1 labor productivity dropped 0.5%, adding to the mixed economic signals.