By Simon Eastman
In the last two days, the markets have been driven entirely by the news Iran and Israel have agreed a cease fire after some intense missile strikes from both sides. The bombing of Iranian nuclear sites by the US on Sunday, set the tone for risk averse trading as the week kicked off, seeing the US Dollar benefit whilst riskier assets like the Pound and Antipodean currencies (AUD, NZD) all faltered.
With the ceasefire confirmed, markets breathed a sigh of relief, and the riskier assets once again benefited with AUDUSD trading at its highest levels since early April and GBPUSD up at its best levels since the beginning of the year.
With interest rate differentials between the Sterling and the Dollar, and other market factors considered, locking in a forward contract to year end is looking very attractive currently, so anyone with long term USD exposure, it would be prudent having a conversation with our trading team. Of course, shorter term requirements benefit from locking in the rates too, especially given the fragility of market sentiment caused by current geopolitical events.
GBPEUR also benefited today as the Pound managed a more subdued rally against the single currency. A mix of German IFO releases helped the Euro to taper Sterling’s gains, plus allowed it to rally over half a cent itself against the US Dollar, as traders then focussed on the first of Federal Reserve Chair Jerome Powell’s two day testimony at Congress.
Powell reaffirmed his recent stance on a data driven approach to interest rates going forward, noting progress on the battle with inflation and that the Fed were in no rush to cut interest rates again. This would normally be a positive for a currency, but given the focus was on the Middle East, as mentioned, the greenback struggled.
Today is even quieter for data releases, with nothing of note at all. Traders will instead focus on current sentiment surrounding any further developments in the Middle East and listen to what Jerome Powell says in his second and final day of Congress testimony. Before that, we have speeches from Bank of England Deputy Governor Clare Lombardelli and Chief Economist Huw Pill, who are both keynote speakers at the CBBS “Transforming Monetary Policy” conference in London today.