The euro climbed on Thursday, supported by firmer European yields and an improving risk tone after Israeli Prime Minister Benjamin Netanyahu ordered the start of peace talks with Lebanon and discussions about Hezbollah disarmament, even as fighting continued. Axios reported that negotiations between Israel and Lebanon would start next week at the U.S. State Department in Washington. Netanyahu's announcement follows Israel's biggest strike of the war in Lebanon and multiple officials advocating for a temporary ceasefire to allow for broader talks. Iran's President Masoud Pezeshkian said that Israeli strikes on Lebanon violate the ceasefire agreement and would render upcoming negotiations meaningless. EU's top diplomat Kaja Kallas said the ceasefire agreement between the U.S and Iran should extend to Lebanon, adding that Iran-backed Lebanese group Hezbollah must disarm. A statement from Supreme Leader Ayatollah Mojtaba Khamene said Iran will enter a new phase in managing the Strait and does not seek war though vows to defend its rights. Russia’s TASS reported that Iran will permit no more than 15 vessels a day through the Strait under its ceasefire. NATO chief Mark Rutte said allies are meeting Trump’s demands despite some delays and advocated for greater defense spending by allies to reduce reliance on the U.S. Disappointed in NATO's recent support, Trump is weighing pulling some U.S. troops from Europe, according to Reuters.
Already positioned for a more constructive risk backdrop ahead of U.S.–Iran talks, sentiment accelerated following Netanyahu’s remarks.
The dollar index fell toward its 100-day average at 98.65 and Wednesday’s low, with improved risk appetite lifting the Antipodeans and Scandies.
FX implied volatility fell broadly, with one-month yen vols close to their YTD low near 7.6%, though DXY risk reversals were mostly steady.
EUR/USD broke above its 55- and 100-day moving averages to briefly hit a one-month high at 1.1723 on broad dollar weakness, firmer European yields and EUR/JPY strength, leaving near-term momentum tilted toward bulls into Friday.
AUD/USD rebounded sharply in New York to 0.7095, buoyed by firmer risk sentiment and falling U.S. yields, with momentum turning constructive and near-term upside favored as long as gains hold above the mid-0.70 area.
GBP gained 0.4% on firmer risk sentiment, briefly clearing the 200-day moving average and keeping upside focus on the 1.3485–1.3500 zone, though momentum may be tempered ahead of U.S. CPI risks skewed to the upside.
USD/JPY was capped near its 21-day moving average at 159.22 as firmer risk sentiment, sliding volatility and steady oil supported yen crosses, leaving the pair range-bound with downside risks slightly favored ahead of Friday’s U.S. CPI.
Treasury yields were mostly steady as the curve steepened. The 2s-10s curve was up marginally to +50.8bp.
The S&P 500 rose 0.45%.
WTI oil was up over 4% though off session highs.
Gold rose 1.1% while copper slipped 0.2%
Heading toward the close: EUR/USD +0.31%, USD/JPY +0.25%, GBP/USD +0.27%, AUD/USD +0.48%, DXY -0.32%, EUR/JPY +0.55%, GBP/JPY +0.54%, AUD/JPY +0.73%.(Editing by Burton Frierson Reporting by Robert Fullem)
