Ceasefire, for now
The greenback began Tuesday firmer as lingering uncertainty around the Strait of Hormuz kept safe‑haven demand elevated. By the European close, however, price action reversed sharply after news emerged that Washington had agreed to a two‑week ceasefire with Iran just hours before President Trump’s d
USD
The greenback began Tuesday firmer as lingering uncertainty around the Strait of Hormuz kept safe‑haven demand elevated. By the European close, however, price action reversed sharply after news emerged that Washington had agreed to a two‑week ceasefire with Iran just hours before President Trump’s deadline to reopen the strait. Risk assets rallied, oil prices tumbled below $95 a barrel, and the dollar index slid towards 98.8 – its weakest level in nearly a month. Other major currencies surged, with the euro climbing to the mid‑1.16s and sterling testing 1.34 against the dollar, reflecting broad liquidation of safe‑haven positions. While this eased haven demand, we remain a little cautious that the truce will deliver lasting peace; past ceasefire hopes have been dashed by renewed escalation in hostilities. As such, we will still be scrutinising today’s March FOMC minutes for insight into how officials are weighing the conflict‑driven energy shock, while looking further ahead, we expect Friday’s US CPI to show a sharp rise in headline inflation from 2.4% to around 3.4% YoY, predominantly due to higher energy costs. Without a durable peace, we suspect that still elevated oil prices and geopolitical risks will continue to anchor the dollar around present levels, with further losses likely to come only slowly, and in tandem with an unwind in energy supply disruptions.
EUR
The single currency regained ground on Tuesday as the ceasefire agreement spurred a broad rally in risk‑sensitive assets. Having oscillated in the mid-1.15s against the dollar earlier in the week, the euro jumped towards 1.17 overnight, its strongest level since mid‑March, as haven flows into the dollar unwound. With no major euro‑area releases today and only producer price data on the calendar this week, sentiment will continue to be driven by developments in the Middle East and US events. We therefore view yesterday’s rally as fragile; absent a sustained improvement in geopolitical conditions or a dovish shift in the FOMC minutes, we anticipate that EURUSD will consolidate around 1.17 ahead of Friday’s US CPI.
GBP
Sterling posted solid gains overnight, riding a wave of optimism sparked by Trump’s two‑week ceasefire announcement. Cable, which had been stuck in the mid‑1.32s after President Trump’s prior ultimatum, rallied to touch 1.34 as Brent crude dropped sharply. The improvement in risk sentiment has temporarily eased concerns about the UK’s external balances, but we caution that the pound remains acutely sensitive to energy prices and domestic political risks. We continue to expect sterling to underperform as geopolitical tensions and domestic headwinds – including soft real wage growth and fading fiscal support – argue against sustained appreciation on crosses.
CAD
The Canadian dollar benefited from Tuesday’s risk‑on turn, with USDCAD dropping as investors welcomed the ceasefire news. The loonie had already firmed modestly earlier in the week on the back of rising oil, but gains were limited by weak domestic data. Yesterday saw March’s Ivey PMI fall into contraction territory at 49.7, the first sub‑50 reading in four months. These figures reinforce our view that the Canadian economy is struggling to gain traction and that the Bank of Canada will remain cautious, despite a potential boost from lower energy prices. With no major releases today, attention turns to Friday’s labour market report, where traders expect a modest 15k gain in employment, and the unemployment rate will rise to around 6.8%. Until we see evidence of sustained job growth and clearer progress toward peace in the Middle East, we think USDCAD will continue to track broader risk sentiment and remain trading around current levels.