By Sandra Rhouma

The market is pricing in higher euro rates through 2031. But can the region’s economy take them?

As expected, the European Central Bank (ECB) raised its three key interest rates by 25 basis points (bps) on June

Traders were also digesting unprecedented demand for shares in SpaceX, which raised $75 billion in an initial public offering and jumped about 20% in its Nasdaq debut.

The euro was little changed at $1.15725, hovering near a one-week high and set for a weekly ‌gain after the ⁠European Central ⁠Bank delivered its first interest rate hike in three years on Thursday.

PEACE DEAL

Leaked terms of a proposed memorandum to end the war in the Gulf, outlined by Western, Pakistani and Iranian sources on Friday, appeared to favor Iran, drawing criticism from U.S. President Donald Trump who called the reports inaccurate. Trump’s announcement on Thursday regarding a deal had prompted Wall Street shares to rally, oil prices to slip and the U.S. dollar to fall.

Live Events

Markets are pausing as they assess the prospects for ⁠peace and ‌the impact of the SpaceX IPO, with investors watching whether funds will shift from equities or cash, said John Velis, FX and macro strategist at BNY.
“The hoped-for good ⁠news on the ceasefire in the Middle East had a big reaction overnight and I think we came in this morning and we have the SpaceX IPO and a bunch of central bank meetings next week,” Velis said.
The U.S. dollar was up 0.18% against Japan’s currency at 160.225 yen, holding near a key level that often triggers concern about intervention from Tokyo.
The pound was steady at $1.34145. Data showing the UK economy contracted in April had little impact, with markets focused on Iran talks.

The U.S. dollar index, which ‌measures the greenback against a basket of six currencies, was flat at 99.75 after hitting a one-week low on Thursday.

Investors have tended to buy the safe-haven dollar when tensions in the Iran war flare, ⁠and sell it in favor of riskier assets such as stocks when peace talks appear to make progress.

FED IN VIEW

Data on Thursday showed U.S. producer prices increased more than expected in May, ahead of Kevin Warsh’s first rate-setting meeting as chair of the Federal Reserve next week.

Traders expect the Fed to keep rates steady at 3.5% to 3.75%, but see a greater than 50% chance of a hike by year-end. Pricing edged slightly lower on Thursday after Trump’s comments on a potential deal.

Against the Swiss franc, the dollar strengthened 0.21% to 0.79680.

In cryptocurrencies, bitcoin gained 0.40% to $63,595.26. Ethereum declined 0.29% to $1,665.87.

Brent futures were down $3.34, or 3.7%, at $87.04 a barrel by 1035 CDT (1535 GMT), while U.S. West Texas Intermediate (WTI) crude dropped $3.11, or 3.55%, to $84.60. Both contracts were at their lowest prices since April 17.

“The market thinks we’re closer to the deal,” said Phil Flynn, senior analyst with ‌Price Futures Group.

A ⁠memorandum between ⁠the U.S. and Iran to halt the war in the Gulf could be signed as soon as Sunday, a Western source told Reuters on Friday, with Geneva emerging as the likeliest venue.

Iran’s Fars news agency, however, citing a source close to the negotiations, denied that speculation.

Live Events

U.S. President Donald Trump called off his threatened air strikes on Thursday, while Iran’s Mehr news agency reported that final negotiations on the memorandum would focus on nuclear and economic issues but would exclude discussions about Iran’s missile programme.
Iran’s IRNA news agency, meanwhile, said nuclear talks would take place within ⁠a 60-day ‌period after a memorandum was signed. “Headlines are driving the market once again as confidence grows that an eventual deal will be struck and the Strait (of Hormuz) reopens,” said Tamas Varga, an analyst ⁠at PVM Oil Associates.

The caveat, however, is that global and regional oil stocks are still low and could drift lower, even with a deal, as it would take time to ensure uninterrupted oil flows, he added.

On Thursday, Iran announced a complete closure of the strait, saying it would fire on any ship trying to pass through the waterway. Traffic through the strait, which normally carries a fifth of global oil and liquefied natural gas shipments, has been extremely limited as a result of the war.

The U.S. military, however, said on social media that commercial ships continued to transit the waterway.

“We ‌believe the market reaches an inflection point in late July if we do not see oil flows resuming before then,” ING analysts said in a note. “This is when inventory levels and seasonally stronger demand push prices significantly higher towards $120-130 ⁠per barrel.”

Goldman Sachs lowered its 2027 average Brent forecast to $80 a barrel on higher supply and lower demand, but expects prices to exceed the 2025 average on stockpiling of OECD commercial oil stocks and a security premium for disruptions.

The Organization of the Petroleum Exporting Countries lowered its forecast for 2026 world oil demand growth to 970,000 barrels per day on Thursday from a previous 1.17 million bpd – its second straight downward revision.

The producer group also said consumption would eventually rebound. It expects oil demand in 2027 to rise by 1.73 million bpd, up 190,000 bpd from its previous forecast.

Stocks had rallied sharply on Thursday after U.S. President Donald Trump called off attacks on Iran and announced the two countries were close to a deal to end their three-month-old war.

However, details of such a deal ‌were unclear. A senior ⁠U.S. official said ⁠on Friday that negotiators for the U.S. and Iran are close to the finish line of a deal that could be signed in the coming days. The official told reporters that an agreement would include a commitment by Iran to neither develop nor procure nuclear weapons and would reopen the Strait of Hormuz to normal oil traffic and lift the U.S. blockade.

But Iran’s foreign minister Abbas Araqchi said that nuclear issues will be discussed in later stages and that management of the Strait of Hormuz would not return to the pre-war era.

Still, U.S. Treasury yields rose while stocks finished higher after climbing back up from morning declines.

Live Events

The SpaceX IPO was a bigger boost for stocks on Friday than the prospect of an Iran deal, said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, adding that since mid-March President Donald Trump has repeatedly said that a deal with Iran was ⁠close.
“The market’s ‌been stung more times about peace in the past. Yesterday was because Trump called off the attacks. That was a tangible result. Today we’re still waiting for proof of a deal,” he said. “The excitement about the SpaceX IPO is what’s driving the market. A healthy IPO is great for the market.”

Dollarhide ⁠said it could be a productive year for IPOs with artificial intelligence companies OpenAI and Anthropic also expected to make their debuts this year.

In their first day of trading, shares in rocket and spacecraft manufacturer SpaceX closed up more than 19% at $161.11, with the market debut pushing the company’s valuation past $2 trillion and making founderElon Musk the world’s first trillionaire.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the successful SpaceX IPO was “a barometer for overall risk appetite and the health of the market in general.”

On Wall Street, the Dow Jones Industrial Average rose 353.51 points, or 0.70%, to 51,202.26, the S&P 500 rose 37.16 points, or 0.50%, to 7,431.46 and the Nasdaq Composite rose 79.18 points, or 0.31%, to 25,888.84.

MSCI’s gauge of stocks across the globe rose 12.69 points, or 1.15%, to 1,112.24.

Earlier, the pan-European STOXX 600 index finished up 1.88%. The European Central Bankraised interest rates for the first time in nearly three years on Thursday to nip ‌war-driven inflation in the bud. Final inflation data from several European countries including France and Spain showed inflation accelerated in May, while official data showed Britain’s economy contracted by 0.1% in April – its first monthly drop since August.

OIL MARKETS SLIDE

In energy markets, oil futures added to Thursday’s losses. U.S. crude settled down 3.23%, or $2.83, at $84.88 a barrel after touching its lowest level in almost ⁠two months. Brent finished the session at $87.33 per barrel, down 3.37%, or $3.05.

In fixed-income markets, U.S. Treasury yields rose from one-week lows as traders kept an eye on Middle East updates and looked ahead to next week’s Federal Reserve policy meeting, which will be the first under the leadership of Kevin Warsh.

The yield on benchmark U.S. 10-year notes rose 1.6 basis points to 4.481%, from 4.465% late on Thursday, while the 30-year bond yield rose 1.8 basis points to 4.9705%.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 1.7 basis points to 4.087%.

In currencies, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.05% to 99.78, with the euro down 0.08% at $1.1568.

Against the Japanese yen, the dollar strengthened 0.18% to 160.2. Traders are still on high alert for intervention from Japanese authorities as the yen stays close to the 160 level that many see as a line in the sand.

In precious metals, spot gold fell 0.03% to $4,212.66 an ounce while spot silver rose 0.86% to $67.93 an ounce.