Investors and forex traders remain cautious when opening new positions at the end of the week, as the situation in the Middle East remains in focus. Yesterday evening, President Donald Trump told journalists that an agreement between Washington and Tehran could be signed as early as this weekend in the EU, where Vice President JD Vance is heading. Iranian Foreign Ministry spokesperson Esmail Baghaei confirmed that part of the future agreement’s text had been coordinated, assuring the media that negotiations are indeed in the final stage of preparation, although disagreements on some points still remain.
Eurozone
The euro is strengthening against the pound, the U.S. dollar, and the yen. Yesterday’s interest rate hike by the European Central Bank was already priced into quotes, and the EU became the first of the major economies to adjust monetary policy in response to inflation risks. During the subsequent press conference, ECB President Christine Lagarde noted that the decision was unanimous and was made in response to energy shocks, adding that she does not believe the hawkish cycle will continue at the next meeting. Thus, officials do not expect a sustained rise in inflation and believe that one more adjustment in borrowing costs in September will be enough to fully control prices, once the effectiveness of the measures already taken is assessed.
United Kingdom
The pound is weakening against the euro but rising against the U.S. dollar and the yen.
The Bank of England does not intend to adjust monetary policy at its next meeting, as almost all key macroeconomic indicators point to the stability of the national economy: in the first quarter, gross domestic product increased from 0.6% to 0.7%, output in the services sector remained at 0.8%, industrial production declined from 0.2% to –0.1%, while construction accelerated from 0.2% to 1.6%. In monthly terms, the economy slowed from 0.3% to –0.1% due to a 0.2% weakening in the tertiary sector, although this was partially offset by a 0.1% strengthening in the housing market.
Japan
The yen is weakening against the euro, the U.S. dollar, and the pound.
The currency remains near its annual low despite yesterday’s strengthening. Next week, the Bank of Japan will hold its monetary policy meeting, during which officials may raise the interest rate to 1.00%. According to a Reuters survey of leading economists, core inflation in May will remain unchanged at 1.4%, below the 2.0% target, due to the end of government fuel subsidies, while a continued blockade of the Strait of Hormuz would accelerate energy price growth. This impact will be partially offset by an additional 19.0-billion-dollar budget approved earlier this month.
Australia
The Australian dollar is declining against the yen, the U.S. currency, the euro, and the pound.
According to a Reuters survey, economists believe that the Reserve Bank of Australia will pause its hawkish cycle, as slowing economic activity will allow officials to assess the impact of three consecutive interest rate hikes since the beginning of the year totaling 75 basis points, which offset last year’s monetary easing. In the first quarter, gross domestic product slowed from 0.9% to 0.3%, while unemployment rose to 4.5%, the highest level since November 2021.
Oil
Oil quotes are slowly declining, trading near 86.00.
U.S. President Donald Trump reported a high probability of a peace agreement with Iran being reached this weekend, which could be signed in the EU, where Vice President JD Vance has traveled. The head of the White House told journalists that after the conflict is resolved, he expects the Strait of Hormuz to be unblocked. The Iranian side confirmed work on the agreement, noting that disagreements remain on several key issues. Against this background, crude oil prices shifted into negative dynamics, and if investors’ hopes for an end to the confrontation in the Middle East are justified, they may renew the spring low of 84.00.
