FX Daily: Remarkable resilience of risk assets

What’s next for the USD after the ceasefire in the Middle East?

The desk anticipates continued weakness for the USD following the recent ceasefire agreement between the US and Iran, as highlighted by MUFG EMEA's analysis. This development has already led to a significant reversal in the dollar's strength, with the dollar index dropping from a 3% gain to just over 1% since the conflict's escalation. The desk notes that the easing of military tensions has diminished safe-haven demand for the dollar, while diverging monetary policy signals from the Fed and other central banks further exacerbate this trend. Per the full note [source], the Fed's reluctance to raise rates in the face of rising inflation contrasts sharply with the ECB's more hawkish stance, which is expected to lead to further dollar depreciation.

Dollar drifts lower as oil prices and bond yields slide on US-Iran hope

Rates Spark: Feels quite digital this time

The desk anticipates a potential upward movement in market rates, driven by optimism surrounding a possible US-Iran deal, while remaining cautious of the risks associated with a negative outcome. Per the full note [source], the sentiment reflects a nuanced understanding of the geopolitical landscape, suggesting that while traders are hopeful, the volatility of past negotiations looms large. Recent market behavior indicates a slight easing in rates, but a rebound is expected as traders position for the outcome of ongoing discussions. The lack of high-impact events on the calendar suggests that market sentiment will be the primary driver in the near term.

Bearish Dollar Thesis Faces Reset on Iran War Says Deutsche Bank - Pound Sterling Live

Deutsche Bank's recent commentary suggests that the bullish outlook on the US dollar may need reassessment due to geopolitical tensions arising from the Iran conflict. Their bearish dollar thesis is grounded in concerns that escalating conflicts can impact global risk sentiment, prompting capital flows away from the US dollar. The bank posits that as geopolitical tensions rise, market participants might favor currencies viewed as safer assets, particularly the euro and yen. This shift could diminish demand for the dollar, ultimately affecting its valuation against major currencies.