Key Takeaways

• Modest pullback: The DXY and dollar index futures fell about 0.1% each, after rallying over 1% the prior session.
• Strong weekly gains intact: The dollar held on to most of last week’s gains as oil and bond yields surged.
• Iran tensions persist: Reports show the U.S. and Israel preparing more military operations against Tehran.
• Trump’s deadline: The president warned Iran was running out of time to accept a peace deal.
• UAE drone attack: Oil jumped 2% after a drone strike on the Barakah nuclear plant — a “dangerous escalation.”
• Bond sell-off deepens: U.S. 10-year yields hit a near one-year high last week, while 30-year yields reached their highest since the 2008 financial crisis.
• Yen flat, BOJ hike expected: USD/JPY rose 0.1% with Japanese 10-year yields at 29-year highs; markets bet on a June BOJ hike.
• China data disappoints: Industrial production missed expectations, retail sales slumped to a 3-year low, and fixed asset investment shrank for the first time in three months.
• Yuan weakens: USD/CNY rose 0.1%, with the Chinese currency near 2½-year lows.
• Trade agreement unclear: China and U.S. reportedly agreed to lower some trade barriers post-summit, but details remain murky.
• Aussie slips: AUD/USD fell 0.3%.

The dollar fell slightly on Monday after logging strong gains in the prior week, with concerns over the inflationary impact of the Iran war and its effects on rates continuing to underpin the greenback.

The Japanese yen was flat, while the Chinese yuan softened after economic data for April largely underwhelmed — leaving markets on edge over a continued slowdown in Asia’s largest economy.

The dollar index and dollar index futures fell about 0.1% each, after rallying over 1% in the prior session.

Dollar Sits on Strong Weekly Gains Amid Oil Strength, Bond Sell-Off

The dollar held on to most gains from last week, as rising oil prices and a surge in bond yields kept markets largely biased toward the greenback.

Tensions between the United States and Iran remained high, with reports indicating that the U.S. and Israel were preparing additional military operations against the country. Trump warned that Tehran was running out of time to accept a peace deal.

Oil prices jumped 2% on Monday after a drone attack on a United Arab Emirates nuclear power plant — which the Gulf state attributed to Iran and called a “dangerous escalation.”

Concerns over higher energy-fueled inflation saw markets bet on higher global interest rates, sparking a deep sell-off in bond markets that sent yields to multi-year highs.

U.S. 10-year yields hit a near one-year high last week, while longer-dated 30-year yields were at their highest since around the 2008 financial crisis.

Japanese Yen Flat, Chinese Yuan Weakens on Soft April Data

The Japanese yen’s USD/JPY pair rose 0.1%, with Japanese 10-year bond yields surging to a 29-year high. Rising inflation spurred bets that the Bank of Japan will hike interest rates in June, although this is expected to provide only limited relief to the beleaguered yen.

The Chinese yuan’s USD/CNY pair rose 0.1% on Monday, rising further from its lowest level in 2½ years.

The yuan was pressured by data showing Chinese industrial production grew less than expected in April, while growth in retail sales slumped to an over three-year low.

Fixed asset investment — a key gauge of private and government capital spending — shrank for the first time in three months in April.

The readings indicated that China’s economy remained on the back foot despite a small boost earlier this year, with sluggish domestic demand in particular being a key weight.

Disruptions stemming from the Iran war are expected to weigh further on Asia’s largest economy.

China over the weekend said it and the U.S. had agreed to lower some trade tariffs and barriers after last week’s summit. But details of the agreement remained unclear.

Among other Asian units, the Australian dollar’s AUD/USD pair fell 0.3%.