June 25, 2025

“The Israel-Iran conflict is as good as over in the eyes of the markets, and the dollar’s safe haven support has evaporated this week. It touched multi-year lows yesterday and may be at risk again today with Powell’s Senate testimony.”

Sam Cornford – Head of Trading

USD

Despite a few wobbles yesterday, the fragile ceasefire in place in the Middle East seemed to give the FX, equity, and oil markets the green light to price out all geopolitical risk. Oil has fallen 15% in two days, the MSCI World index is back to a record high, and the dollar hit three-year lows against the pound and the euro yesterday. There might be a snapback if geopolitical concerns resurface, but for now investors appear to be very confident in the Middle East’s oil infrastructure being safe from attack.

This means that the US macroeconomic story is back in charge. The market was on the watch for any opening for cuts during Chair Powell’s testimony to the House yesterday, and while there were a couple of dovish soundbites, he largely stuck to the line that there was no reason to rush without a clear view on the tariff impact. Nevertheless, Treasury yields declined slightly as he touched on the possibility that a weaker labour market and softer tariff passthrough might bring rate cuts forward. Today he speaks to the Senate, and we also get some housing data for May.

GBP

By late afternoon yesterday, sterling had shot up by 2% against the dollar in just over 24 hours as it sprung back after the ceasefire and some dovish Fed comments. Like most of FX, the US is a more dominant driver than the domestic story this week. There were several speakers from the Bank of England yesterday, though, with Ramsden arguing that the weakness in the labour market is already a strong enough reason to cut while Greene was more cautious on the upside risks to inflation. A jobs survey released this morning pointed to slowing wage growth and falling vacancies, lending some support to Ramsden’s case.

EUR

The euro gained to reach to a fresh three-year high versus the dollar yesterday – or rather, dollar weakness pushed it up there. The only news of note in the eurozone was that the EU is preparing fresh retaliatory tariffs to improve its leverage in US trade negotiations, and that Spain is refusing to meet a 5% defence spending commitment at the NATO summit. These might affect FX at the margin, but it is predominantly the US economic narrative driving EURUSD right now.

Markets

Stocks have rebounded aggressively since Trump’s ceasefire announcement. The Nasdaq rose 1.5% in yesterday’s session and came within a whisper of notching a fresh record high and beating February’s peak at 22,222. The S&P 500 is inching towards the same record, and European stocks rose broadly, with the exception of the FTSE 100.

Main Economic Events (All Times CET)

3:30am: Australian CPI
9:30am: Riksbank Meeting Minutes
4:00pm: US New Home Sales & Powell Testimony to Senate

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