Forex News
Esmail Baghaei Hamaneh, the Spokesperson for the Ministry of Foreign Affairs of Iran, said on Monday that respecting sovereignty and territorial integrity of Lebanon is a part of the interim agreement with the United States (US).
"Regional visits are on the agenda before the signing of agreement with the US in Switzerland," Baghaei added and said that the US will commit itself to give Iran access to its frozen funds but the US will not give Tehran any money.
Market reaction
The US Dollar (USD) Index showed no immediate reaction to these comments and it was last seen losing 0.25% on the day at 99.55.
Additional takeaways
"Tehran will take measures to ensure safe passage in Strait of Hormuz in coordination with Oman and other countries, this will be for a specific time and corresponding to the US' own commitments."
"The US is obliged to deliver its commitments under the agreement, failure to do so will lead to reciprocal measures from Tehran."
MUFG’s Lee Hardman highlights that Oil prices have fallen back toward USD80 per barrel as markets anticipate normalized flows through the Strait of Hormuz after the US-Iran agreement. However, he argues that Oil is unlikely to return below USD70 because supply restoration will take time, inventories are depleted and a higher geopolitical risk premium is likely to persist.
Energy markets price conflict de-escalation
"The price of oil has continued to drop back towards USD80/barrel overnight reflecting building investor optimism that energy supplies will soon begin to normalize."
"However, we doubt it will return to pre-conflict levels below USD70/barrel given it will take time for supplies to come back on stream, inventories have been run down and a larger geopolitical risk premium will still be required to reflect the ongoing risk of the deal breaking down."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
BNY’s Bob Savage notes that the Japanese Yen is in focus as FX markets react to geopolitical de-escalation and shifting risk sentiment. The reopening of the Strait of Hormuz has supported risk assets, but investors remain attentive to policy divergence involving JPY, KRW and USD. Markets are also watching upcoming Fed and BoJ decisions and potential intervention risks.
Yen reacts to risk repricing
"Markets have rallied sharply following the announcement of a U.S.-Iran agreement to reopen the Strait of Hormuz."
"FX markets remain sensitive to policy divergence, with attention on JPY, KRW and USD trends as investors reassess carry trades and intervention risks."
"Markets are continuing to assess the implications of ECB tightening, the upcoming Fed and BoJ decisions and the risk of higher-for-longer global interest rates."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- USD/CAD holds above 1.3950, with seven-month highs at 1.4020 on sight.
- Lower Oil prices are weighing on the Canadian Dollar, offsetting the impulse from risk appetite.
- Market volatility remains subdued with the Federal Reserve decision on tap.
The Canadian Dollar (CAD) is trading without a clear bias against the US Dollar (USD) on Monday. The USD/CAD pair oscillates above 1.3950, with year-to-date highs at 1.4020 within a relatively short distance, as US Dollar weakness, stemming from the risk-on market, has been offset by the negative impact of declining Oil prices on the CAD.
Moderate appetite for risk dominates the market at the week's opening, following news that the US and Iran have reached a memorandum of understanding that will end the three-month war and reopen the Strait of Hormuz.
Lower Oil prices hurt the CAD
Investors have reacted by paring back their long positions in the safe-haven US Dollar, which is showing the weakest performance among the major currencies on Monday. The Canadian Dollar, however, has been unable to capitalise on the Greenback’s weakness, weighed down by the decline in Crude prices. Oil is Canada’s main export, and the fall in Brent prices, which are trading at three-month lows at the time of writing, is widely expected to curb Canada's foreign trade revenues.
Apart from that, traders are likely to be looking from the sidelines ahead of the US Federal Reserve meeting on Wednesday. The bank is expected to stand pat on rates, and the main interest of the event will be the bank's rate and economic projections, and the new Chairman Kevin Warsh’s press release to detect changes in the forward guidance.
In Canada, last week, the Bank of Canada (BoC) left interest rates unchanged and highlighted the challenges posed by high inflation combined with sluggish economic growth. The CAD fell below 1.4000 against the US Dollar for the first time since last November.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Deutsche Bank reviews performance of Oil, bonds, European equities and precious metals from late February to last Friday during the conflict. The bank notes Oil and AI-related trades surged, while bonds, most European equities and precious metals fell. It adds that today’s combination of lower Oil and bond yields with rising equities and precious metals fits this broader context.
Conflict drives divergent asset moves
"After numerous false dawns, a deal has finally been struck."
"The story is largely self-explanatory: a fascinating interplay saw oil and AI-related trades soar, while bonds, most European equities, and precious metals experienced declines."
"This context makes this morning's market reaction—falling oil and bond yields alongside rallying equities and precious metals—perfectly understandable."
"All eyes are now on Anthropic and the US government to see what agreements emerge."
"Assuming the US/Iran deal is signed and no notable setbacks occur in the 60-day negotiating period for broader issues, then AI will undoubtedly reclaim its position as the dominant market narrative."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
According to BNY’s Bob Savage, the Dollar is trading within a broader risk-on environment after the U.S.-Iran agreement to reopen the Strait of Hormuz eased energy supply concerns. FX markets are highly sensitive to policy divergence, with USD trends reassessed alongside JPY and KRW. Investors are focused on central bank decisions and higher-for-longer rate risks.
Dollar tracks global policy shifts
"This has reduced the immediate energy supply risks and supported a broad risk-on move across equities, bonds and currencies."
"FX markets remain sensitive to policy divergence, with attention on JPY, KRW and USD trends as investors reassess carry trades and intervention risks."
"Despite the positive geopolitical backdrop, investors remain focused on central bank policy, global growth trends and whether improving sentiment can overcome persistent concerns around inflation, rates and capital flows."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
According to the June 11-15 Reuters poll, all 35 economists predicted that the Swiss National Bank (SNB) would keep its policy rate at 0% this week. 28 economists who responded with forecasts until the end of 2026 saw rates staying at 0% the entire year. Only four economists expected one or two quarter-point rate rises in 2027.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.
MUFG’s Lee Hardman observes that the Japanese Yen has not benefited from lower energy prices, with USD/JPY still above 160.00 ahead of the BoJ meeting. He notes record short Yen positions and expects a fully priced 25 bps BoJ hike, while warning that persistent Yen weakness could prompt further intervention, especially if falling energy prices and softer Fed expectations support a stronger Yen.
Yen shorts build before policy decision
"The yen has failed to benefit so far from the ongoing drop in energy prices with USD/JPY continuing to trade above 160.00 ahead of this week’s BoJ policy meeting."
"The latest IMM report revealed that leveraged funds have significantly increased short yen positions since the conflict started."
"Short yen position increased for the fifth consecutive week to 9th June and have increased by almost four times since late February reaching."
"It is the largest short yen position since the start of July 2024 which was then followed by the heavy liquidation of yen-funded carry trades in the summer of 2024 after the BoJ hiked rates in July 2024 and the Fed cut rates in September."
"If the yen remains weak, it will keep pressure on Japan to intervene again to provide support."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
European Central Bank (ECB) Governing Council member and Governor of the National Bank of Slovakia (NBS) Peter Kazimir seems to be joining his peers in highlighting the need for further monetary policy adjustments on the upside despite the United States (US) and Iran reaching a peace framework.
Remarks
It is increasingly evident that monetary policy has more work to do.
Energy shock is seeping into the economy, requires ECB's vigilance and preparedness to respond.
I am not comfortable with outlook for core inflation above 2% even with more tightening.
I lean towards frontloading work that needs to be done, but need to be agile and responsive to incoming information.
Even with US-Iran peace framework, damage in Middle East cannot be undone overnight.
Market reaction
No immediate response seen in the Euro (EUR) after ECB Kazimir's comments. During press time, EUR/USD trades 0.37% higher to near 1.1610 amid an upbeat market mood.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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