Investors and forex traders are focused on developments in the Middle East conflict. Last Sunday, it became known that Iran and the United States had reached a framework agreement providing for a complete ceasefire, the opening of the Strait of Hormuz, and the lifting of sanctions on the Islamic Republic. At the same time, negotiations on the nuclear program are expected to take place within 60 days, although tensions in the region have not been fully eliminated. The parties disagree on key issues: Iran intends to charge “duties” for the passage of vessels through the strait, while U.S. President Donald Trump insists on its full opening without additional conditions as early as Friday. Moreover, he warned that if the final nuclear agreement is cancelled, military attacks will resume. Market participants are preparing for the U.S. Federal Reserve monetary policy meeting scheduled for tomorrow at 20:00 (GMT+2), which will be the first under Kevin Warsh. The market expects the interest rate to remain in the 3.50–3.75% range, but the main focus will be on the press conference and updated economic forecasts. Inflation accelerated to 4.2% in May, although the core indicator remained relatively moderate at 2.9%, while the labor market remains stable. Any hints from the leadership about readiness to follow a hawkish course longer than expected could limit the dollar’s downward dynamics.
Eurozone
The European currency is strengthening against the pound and the Australian dollar but declining against the U.S. dollar and the yen.
European investors remain focused on eurozone macroeconomic data published the day before: industrial production volumes for April fell from 0.4% to 0.1% month-on-month, while analysts had expected a slowdown only to 0.3%. In annual terms, however, the indicator showed moderate growth of 0.3% after a correction of –2.8% in the previous reporting period.
United Kingdom
The pound is declining against the U.S. dollar, the euro, and the yen, but rising against the Australian dollar.
Tomorrow at 08:00 (GMT+2), investors will focus on consumer price index statistics: the consensus forecast suggests that the annual figure will remain at 2.8%, but the core indicator may accelerate to 2.7% from 2.5%, signaling persistent price pressure. Moreover, long-term household inflation expectations may rise to their highest levels since 2019, reaching 3.8% over a five-year horizon. The data will be crucial for Bank of England officials at the monetary policy meeting scheduled for Thursday at 13:00 (GMT+2), although current forecasts suggest that the regulator will vote unanimously to keep the interest rate at the current level of 3.75%.
Australia
The Australian dollar is declining against the U.S. dollar, the yen, the euro, and the pound.
Today, officials of the Reserve Bank of Australia unanimously kept the key interest rate at 4.35%, marking the first pause in the current cycle after three consecutive increases in February, March, and May, before which the rate stood at 3.60%. The accompanying statement noted that the measures taken have led to a cooling of the national economy, requiring a wait-and-see approach. However, the April consumer price index stood at 4.2%, while the regulator’s preferred trimmed mean indicator rose to 3.4%, exceeding the 2.0–3.0% target range for the ninth month in a row. Thus, investors received a clear signal that the hawkish cycle is not yet over and that the bank will do everything necessary to reduce inflation, including further increases in borrowing costs if needed.
Japan
The yen is gaining value against the euro, the pound, the Australian dollar, and the U.S. dollar.
Investors are focused on the Bank of Japan meeting, which ended with the expected 25-basis-point interest rate hike to 1.00% and was supported by seven board members against one, although the adjustment itself had already been fully priced in by the market. Toichiro Asada voted against changing the parameters, stressing that the risks of economic slowdown amid the Middle East conflict exceed inflation risks. At the same time, the gap between interest rates in the United States and Japan remains significant, which substantially limits further strengthening of the yen: even after reaching 1.00%, borrowing costs are still almost 275 basis points below the Fed’s 3.50–3.75% range. Moreover, the Bank of Japan decided to suspend the reduction of government bond purchases from April 2027, keeping the monthly purchase volume at around 2.0 trillion yen, which is perceived by the market as a dovish signal and may further weaken the yen.
Oil
Oil quotes have moved toward March lows. The main factor behind the negative dynamics is the preliminary peace agreement between the United States and Iran, which was officially announced on Sunday: the conflict, which had lasted since late February, led to the blockade of the strategically important Strait of Hormuz, through which around 20.0% of global hydrocarbon supplies normally pass, and to a production decline of approximately 14.0 million barrels per day. Now, however, the parties have agreed on a framework for opening the waterway and ending hostilities. On Monday, U.S. President Donald Trump stated that shipping was being restored, but later the Iranian news agency Fars, citing government sources, reported that under the agreement, the Islamic Republic and Oman would be able to independently determine the conditions for passage through the strait in the future, claiming that the White House recognizes Tehran’s right to charge tariffs for its use after the free 60-day period expires.
