Written by the Market Insights Team
Greenback on the back foot
Antonio Ruggiero – FX & Macro Strategist
Just hours after the US-brokered truce took effect yesterday, Israel accused Iran of violating it by launching missiles. Despite the blow to an already tenuous agreement, markets showed a modest revival in risk appetite—oil prices and the dollar declined, while the S&P rose nearly 1%.
Netanyahu’s accusations underscored the fragility of the truce, and initial fears of escalation—fueled by US involvement over the weekend and Trump’s threats—kept investors on edge. But once it became clear that Washington had no intention of deepening its involvement, markets took that as the critical signal: the threshold for further escalation had been defined.
President Trump expressed confidence that the truce would hold following a conversation with Netanyahu yesterday, who agreed to hold off on further strikes.
This de-escalation reignited underlying bearish sentiment toward the dollar, which dropped almost 1.5% from Monday’s highs of 99.385. The decline was further driven by Powell’s testimony to Congress. While he maintained the Fed’s wait-and-see stance pending greater clarity on the impact of Trump’s tariffs, his tone turned distinctly dovish. “The story has been evolving, our thinking has been adapting,” he remarked, noting that a significant majority of Fed officials see rate cuts as appropriate later this year—and that softer inflation data could accelerate the timeline.
Adding to the dollar’s slide was disappointing Conference Board data: expectations slipped to 69 from 72.8, the present situation index dropped to 129.1 from 135.9, and the overall index fell to 93.0 from 98—all released during Powell’s remarks.
Bulls in Frankfurt, doves in DC
Antonio Ruggiero – FX & Macro Strategist
The euro surged to a year-to-date high of $1.1641, driven by both idiosyncratic and US-related developments, with the 2021 peak of $1.1692 now in sight. The pair is up nearly 12% YTD, trading well above its major moving averages and brushing the upper edge of its Bollinger band—a technical indicator that plots a moving average flanked by upper and lower bands, typically two standard deviations apart, to gauge volatility and potential overbought or oversold conditions.
Powell’s unexpectedly dovish tone in congressional testimony yesterday—paired with easing geopolitical tensions—reignited the euro rally. Meanwhile, Germany’s IFO index rose for a sixth consecutive month, reaching 88.4 in June from 87.5 in May, marking the highest level since last summer. The DAX responded with a gain of over 2%, buoyed by hopes that fiscal stimulus could anchor a more sustainable recovery.
Some of the optimism may reflect what still feels like a political honeymoon. The new government has adopted a more measured tone, avoiding the public infighting and abrupt policy shifts that defined its predecessor. Its long-term fiscal strategy—centered on infrastructure and defense—is lending an added layer of stability that’s resonating with businesses and markets alike.
That said, Germany and the broader eurozone continue to navigate choppy waters. Fragile global trade, rising geopolitical tensions, and climbing oil prices keep the macro environment clouded. The honeymoon may be promising—but it’s unfolding under an increasingly unsettled sky.
Looking ahead, Friday’s release of the European Commission’s consumer confidence index will offer insight into whether Germany’s improving sentiment is country-specific or part of a broader regional trend. Still, geopolitical and trade developments are likely to steer near-term euro price action.
Sterling rides the risk-on wave
Antonio Ruggiero – FX & Macro Strategist
With a quiet data week ahead for the UK, sterling remains exposed to shifting trade headlines and geopolitical crosswinds. As tensions eased and risk appetite flickered back to life, the pound gained nearly 1% against the dollar and over 0.4% versus the euro. The euro’s revived safe-haven appeal today sharpens the contrast, casting sterling’s sensitivity to risk-on flows into clearer view.
On the domestic front, it was a heavy day for BoE communication, with Megan Greene, Dave Ramsden, Huw Pill, and Sarah Breeden all speaking. Greene acknowledged that inflation may linger above 3% due to second-round effects like wage pressures, but stressed this shouldn’t derail the BoE’s gradual easing path—a clear sign the threshold for a policy pause remains high. Markets took note, nudging the probability of an August cut from 80% to 83.5%.
Still, the dovish tone did little to dull sterling’s momentum. With two cuts largely priced in, it was the improving geopolitical backdrop—not policy chatter—that set the tone for FX markets, and likely will continue to in the days ahead.
S&P bulls charge ahead as oil retreats
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June 23-27
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
