Trump announces Iran – Israel ceasefire, the USD slumps but uncertainty remains

After a period of sustained tension and worry, talk of a ceasefire between Iran and Israel saw optimism return, with the USD & oil retreating from recent highs. Oil prices have slumped 15% from Monday’s highs.

GBP: GBP/EUR has suffered as markets sell GBP due to domestic policies which might stress the UK borrowing levels to the extreme.  With the EUR gaining slightly in recent days, GBP/EUR has pushed below 1.1700 levels. 

GBP/USD has traded between 1.3400 – 1.3620 in the last month but was trading at 1.2800 in April before the USD sold-off.

USD: Having traded vs the EURO at 1.1400 in the last 3 weeks, EUR/USD is now at 1.1600 as headlines declare that Israel and Iran have reached a ceasefire agreement. However, markets are very nervous that the ceasefire / truce will be broken by one of the parties.

 Usually, the USD is seen as a safe-haven currency and typically strengthens during times of global upheaval and heightened geopolitical tensions. However, during the last 10days, the USD has not strengthened to the extent that one would expect, suggesting that the USD’s status has been diminished by Trump’s policies, controversial statements and continual blurring of US policy messaging.

 Is the USD losing its lustre? Data shows that market participants are ‘short’ the dollar to an enormous degree. With a Fed member saying yesterday that he wanted to cut US rates by 0.25% in July there could be more USD weakness ahead – although markets are only pricing a 20% chance of that July cut, the messaging will be closely watched.

 This afternoon, Fed Chair Powell heads to Congress for an annual testimony, and we will be searching for clues regarding the future path of interest rates in the US – any dovish comments will push the USD lower.

EURO:  The shared currency soared on USD losses, taking EUR/USD up to 1.1600. German data this morning was positive once again which helped the EUR maintain gains. The EURO will struggle to make huge gains because the ECB is intent upon cutting rates to help revive the region, despite oil price volatility and inflation remaining a little elevated.

 Canada: Inflation data released today is likely to show an annual reading of 1.7%, but the month-on-month data could be +0.5% which is much higher than April’s print of -0.1%. This is important as the Central Bank relies on this data to make interest rate decisions and the CAD has fallen rapidly over the previous 2 days. Increasingly difficult to predict inflation, added to the impact of Trump’s tariffs are adding uncertainty to the currency.

This week’s data: 

Tuesday
US: Fed Chairman speaking
Canada: Inflation data
UK: Central Bankers speech

Wednesday:
Australia: Inflation data
US: Fed Chairman speaking

Thursday:
UK: Central Bankers speech
US: GDP & Fed member speech

Friday:
EU:  Consumer Confidence
UK: GDP
USA: Consumer Inflation / Confidence data / Central Bank speakers