Ceasefire tension shakes markets before confidence returns
A few hours after a US-brokered ceasefire was set in motion, Israel accused Iran of breaching it by firing missiles. This briefly unsettled markets, with fears of renewed conflict. But once it became clear that the US would not escalate its role, investors regained some confidence. Oil prices slipped, the dollar lost value, and the S&P 500 rose by nearly 1%.
President Trump later voiced optimism that the ceasefire would hold, saying Netanyahu had agreed to pause further military action.
The dollar dropped by almost 1.5 percent from Monday’s peak, driven in part by a more cautious tone from Federal Reserve Chair Jerome Powell. In his remarks to Congress, Powell signalled that most officials now expect rate cuts later this year if inflation stays weak.
Further pressure on the dollar came from disappointing data released by the Conference Board. Measures of consumer sentiment and current conditions both declined, raising fresh concerns over the US economic outlook.
Euro nears 2021 high as sentiment brightens
The euro jumped to $1.1645, its strongest level this year and just shy of the 2021 peak at $1.1690. It has risen nearly 12 percent since January, approaching the upper support levels.
Support came from Federal Reserve Chair Jerome Powell, whose unexpectedly cautious remarks to Congress dampened dollar demand. Meanwhile, Germany’s IFO index climbed for a sixth month to 88.4 in June, its best reading in nearly a year. The DAX gained over 2 percent, lifted by optimism that fiscal support could boost the recovery.
Improved political stability in Germany is also helping sentiment. The new government has avoided the divisions and policy swings of its predecessor, and its longer-term focus on infrastructure and defence has been welcomed by markets.
Still, challenges remain. Unsteady global trade, elevated oil prices and geopolitical risks continue to cloud the outlook. While confidence is improving, the broader environment remains uncertain.
Attention now turns to Friday’s eurozone consumer confidence figures, which will show whether Germany’s recovery signals a wider trend. In the near term, external factors are likely to drive the euro’s direction.
Pound climbs as global sentiment improves
With few UK economic updates on the calendar, sterling remains at the mercy of international developments. As global tensions eased and risk appetite returned, the pound rose nearly 1 percent against the dollar and over 0.4 percent against the euro. The euro’s renewed safe-haven status only highlighted sterling’s tendency to track shifts in investor mood.
In the UK, several Bank of England officials spoke, including Megan Greene, Dave Ramsden, Huw Pill and Sarah Breeden. Greene warned that inflation could stay above 3 percent due to wage pressures but said this should not prevent a gradual path toward lower rates. Markets responded by slightly increasing the odds of an August rate cut to 83.5 percent.
Despite the cautious tone from policymakers, sterling held firm. With expectations of rate cuts already largely priced in, it was improved global sentiment, not central bank comments, that gave the pound its boost. This broader backdrop is likely to remain the key driver in the days ahead.
