A moving target: 2-week ceasefire deal sees USD pull back, but interest rate hikes are looming

Yesterday saw Trump’s TACO move once again as, despite some dramatic threats of action against Iran, the US President reneged at the last minute and agreed to a 2 week ceasefire - with conditions

GBP:

GBP/USD had been facing recent selling pressure near 1.3200 in recent days but last night the USD weakened and we are now trading at 1.3475 - a level reached 3 times in the previous month. A range of 1.3200 - 1.3500 looks hard to break out of.
GBP/EUR has been side-lined in the last month, hovering around 1.1500 as USD and Asian currencies drive market moves.

USD:

The USD weakened dramatically overnight as the threat of imminent war decreased, EUR/USD shooting up from 1.1500 to 1.1700. This weakening is due to the market unwinding previous ‘safe-haven’ buying of USD.

However, as US Fed member Williams said yesterday the threat of inflation is very real and therefore interest rate hikes and a stronger USD$ is likely in the medium-term. His comments also mentioned Friday’s amazing employment numbers which were way better than expectations:
"Monetary policy is exactly where it needs to be, can be changed if needed."
"Expecting 2% to 2.5% growth rate this year with stable unemployment rate."
"Labour market situation is pretty complicated."
"Job market is low hire, low fire."

EURO:  

Traders expect the ECB to hike rates as early as April due to rising inflation risks from energy shocks.
After last nights USD weakening, EUR vs USD is at 5 week highs at 1.1700.

The Central Bank decided to keep interest rate on hold in March, saying the war in Iran has made the outlook “significantly more uncertain." Policymakers said the conflict had created “upside risks for inflation and downside risks for economic growth,” prompting traders to up bets on potential ECB rate hikes later this year.

Nordea analysts Jan von Gerich, Tuuli Koivu and Anders Svendsen now expect the European Central Bank to prioritise inflation over growth as the Middle East conflict prolongs and broader price pressures build. They forecast four 25bp hikes starting in June, taking the deposit rate to 3% by October and staying there through 2027, with risks skewed towards earlier or larger moves.

All eyes on the EURO and USD in the short-term!