June 23, 2025

“Markets are taking the US military action in their stride so far this morning, though the key in the coming days and weeks will be on Iran’s next steps, particularly with regards to the oil market. Today is PMI day, so markets will be keen to digest the growth outlooks in the UK, US, and eurozone.”

Sam Cornford – Head of Trading

USD

The main news driving markets this morning is naturally the US strikes on Iranian nuclear facilities at the weekend. So far, the net impact on FX has been relatively small; the dollar bounced at the open, but its gains have quickly faded through the morning. The oil market also appears to be confident in the situation being contained, which has turned negative for the day despite initially touching a five-month high. The major question now is this: does Iran weaponise the oil market? Investors can stay relatively calm if the US and Iran exchange a couple of strikes, particularly with how much Israel has weakened Iran’s military power. But, if Iran strikes oil infrastructure or moves to block the Strait of Hormuz (its parliament has already voted this through the first stage), many in the commodities world are looking for oil to hit $100 per barrel or even much higher. That could stoke inflation and cause a surge in safe haven currencies, although it is generally quite difficult to predict where the dollar is going to go this year given its constantly changing relationships.

If it weren’t for the Middle East, attention would otherwise be on the Fed. Trump once again mulled firing Fed Chair Powell on a Truth Social post last week, and a loss of Fed independence is a key downside risk for the dollar. A split also appears to have formed on the FOMC, with Gov Waller calling for a cut as soon as next month while others expect none this year. Today’s main data points are the PMIs for June.

GBP

The pound has softened a touch against the safe havens (CHF, USD) this morning but is broadly solid against the rest of its peers, including the euro. The focus today is on the June PMIs this morning, which the market expects to remain in mild expansion/stagnation at 50.5. Growth momentum was strong in Q1, but recent jobs and activity data have suggested that this has vanished already. The Bank of England’s cautious tone means that only two further cuts are priced in before the end of the year, but several more can be added on if the data continues to validate this weaker growth story.

EUR

The euro dropped 0.5% overnight before reversing around half of its losses as the safe haven rush turned around. The main focus for the euro today is the June PMIs and specifically the services index, which fell into contraction in May for the first time since last November – something the report warned could not be blamed on US tariffs. So far this morning the picture has been mixed ahead of the eurozone-wide figure, with France disappointing and Germany performing much better than expected. ECB President Lagarde also speaks later today at EU Parliament.

Markets

The geopolitical pain in the equity markets is largely concentrated on Europe, with most indexes down a couple of tenths of a percent. Incredibly, US futures are pointing to a positive open despite the fresh escalation from the US.

Main Economic Events (All Times CET)

10:00am: Eurozone PMIs
10:30am: UK PMIs
3:45pm: US PMIs

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