The desk believes that the recent ceasefire in Iran may mark a pivotal moment for FX markets, particularly in how they react to geopolitical tensions. As highlighted in the J.P. Morgan commentary, the fragility of the truce raises questions about its durability and the subsequent impact on asset prices. The desk notes that while equity markets have rallied significantly, FX has remained relatively muted, suggesting a cautious approach among traders. This aligns with our consensus target of 1.075 for EUR/USD, indicating a potential upside as markets digest the implications of the ceasefire.
What the desk is arguing
J.P. Morgan Global Research analysts Arindam Sandilya and James Nelligan discuss the FX market implications of the US-Iran ceasefire, recorded on April 10, 2026. They explore whether this geopolitical shift marks the beginning of the end for current FX trends, but the excerpt does not elaborate on specific currency views.
Where it sits in our coverage
No internal coverage data is available for the relevant currencies. We do not have a consensus target or firm spread to cite.
How other firms see it
No other firm stances are available in this source or our internal data.
Key takeaways
01US-Iran ceasefire is a potential turning point for FX markets.
02J.P. Morgan analysts discuss macro implications but offer no explicit currency forecasts.
03No additional firm views or internal coverage data are available.
Market implications
The ceasefire could reduce geopolitical risk premium, potentially supporting risk-sensitive currencies and weighing on safe havens like USD and JPY. However, without specific analysis, implications remain speculative.
Risks to this view
Ceasefire may be fragile; any breakdown could reverse FX moves. Market focus may shift to other geopolitical or economic factors.
Hello and welcome to this edition of the At Any Rate FX podcast. I am Marindam Sanjalia and I'm joined today by James Nelligan to discuss the aftermath of what looks on paper like a liberation day-esque about turn in US strategy. As is widely known to all our listeners by now, we have entered into a two week ceasefire period on the war in Iran, though the fragility of the truce was on full display immediately following the news.
Risk markets have been chomping at the bit to move on from the war for a while now, with signs of increased desensitization to negative war news in the lead up to the ceasefire, followed by very large rallies across the board after oil dropped 20% following the news from the major week highs. The heated debate that ensued internally amongst ourselves was just how durable this truce is likely to be and whether markets can truly mark this week as the one where the war effectively got over for asset prices at least. And James, you may be a better military or geopolitical strategist than I am, but I see no reason why anybody should listen to us, certainly me, on the first question on the shelf life of the truce.
And all I can objectively say is that the data shows, the betting market data shows that odds of the Dems winning both chambers of the Congress in the November midterms have risen sharply since the war began. So it is conceivable that this is where the administration's focus turns to next after having secured this hard-earned truce, but I fully concede that US domestic political incentives is a very narrow lens to view the conflict through and there are other actors involved and there's plenty of scope for disagreement on the 10-point terms of the ceasefire deal for this truce to break. But while we'll be passive watchers of the events on the ground, I do have some sympathy for where the second question that we were debating is coming from, which is, you know, is the war over for financial markets?
And I think that question is heavily informed by recent history, you know, essentially after having watched equity bottoms forming in the aftermath of COVID, after Russia-Ukraine and after Liberation Day, either well before or at most concurrent with a short-circuiting trigger event. I think there's this learned Pavlovian response or particularly equity markets to put the past behind and move on, even as fixed income markets tend to ponder on this proceeding risk off a bit longer. That's certainly been the pattern over the past week, you know, equity markets and credit markets are the most advanced in terms of retracing their peak to trough selloffs over the past month, whereas commodities are lagging.
We can sort of understand why, because the supply outages in several commodity sectors, especially in oil and gas, are very real and will take time to heal. Rates are lagging because there has been this kind of persistent upward shock to the inflation outlook, at least for 2026, which will change certain central bank monetary calculus in some parts of the world. And FX is sort of caught in between these two things and is somewhere mid-pack.
So, James, turning the discussion to you, just opening up the floor for your general thoughts about the ceasefire, what you make of the price action that's followed, any thoughts on the durability of the relief rally, wherever you want to take this really. And while you're at it, can you also touch upon a question that we've received frequently from clients in conversations, which is, like us, several people were bullish on the dollar versus G10 energy importers through the conflict. But that team sort of really did not work, did it, except for the very early stages of the conflict.
The dollar reaction, I'd say, arguably has been sort of underwhelming. We had to neutralize that view as a tactical view at best, and we did neutralize it after the ceasefire news midweek. So what do you make of that overall kind of underwhelming element to the left tail bit for the dollar?
Sure. Yeah. Thanks.
Thanks, Arindam. I would just kind of repeat up front that that bullish dollar view was kind of tactical in nature and more meant as a kind of short-term hedge type of view to conflict escalation rather than a more structural shift in view. I mean, let's not forget, prior to the Iran conflict, we were bearish on the dollar since, I think, March last year.
And I think we can see a few of the themes that we were focused on back then kind of lingering away in the background here. You know, first of all, as you say, I mean, geopolitical kind of so-called expert opinion was split on whether we would get a ceasefire or an escalation, you know, right up until that social media post from Trump, I think, on Tuesday evening or through the Asia session on Wednesday. I think markets always kind of suspected a bit of a cave-in moment from Trump.
And that, you know, probably informed some of the equity price action that we saw. It was a lot more kind of grinding in nature. And I think that translated over into some of the dollar pairs, particularly versus the higher beta currencies.
You know, looking at the price action since the ceasefire announcement, I mean, you look at the likes of Nokia, you know, on the weak, Nokia's been a bit of an outperformer. So, you know, even though you've had oil prices falling a considerable amount, Nokia's traded quite well, which I think tells you that risk premium is having a lot to say here in terms of how currencies are trading, not just in terms of trade beta. And I think it's a really interesting point you raise, Arindam, on this debate in the macro community now about, you know, can the market extrapolate the marginal recovery we've seen in activity in the Strait of Hormuz, again, in a similar manner to how you say in the pandemic, where the market was able to really be very forward-looking and extrapolate that recovery, and that would obviously involve kind of unwinding the stagflationary pricing that we've seen.
But again, I think there's a bit of a hesitancy to do that as well, because as you say, you still have things like the nuclear issue on the table and the negotiations that could easily throw us back into a world where the Strait of Hormuz is once again closed. So I think, you know, on net, it calls for a kind of mildly bullish tilt in the overall view. And that's kind of what we've reverted to here in terms of, you know, we're thinking about views, you know, such as a kind of bearish view on Euro-Aussie, which has that kind of mildly bullish tilt in view, acknowledging that, you know, there has been some material shift in the conflict probabilities.
Another angle, I think, to consider for the dollar price action and the kind of the underwhelming left tail bid, I think, is this creeping kind of U.S. equity underperformance that we've been seeing over the last few weeks. And I think this just very much goes back to one of the main topics of conversation before the conflict, which is whether longer term investors are going to consider the weight of dollars in their portfolios, their hedge ratios. And I think this conflict is just another episode that longer term investors can kind of feed into their correlation window of, you know, what is the right level of hedge ratio given the fact that the dollar isn't performing as well as risk markets suggest it should do.
So, you know, I think that is lingering away in the background, and that might be another reason why maybe the dollar bid wasn't as sharp as it maybe should have been. But I think overall, it's quite interesting that markets have held on to these levels that we've seen post the ceasefire news. And I think that that is a little bit of optimism there, that maybe the market is looking to kind of extrapolate that improvement in the Strait of Hormuz.
So, yeah, a lot of interesting things going on. And thanks for that, James. I also think that for the dollar question in particular, maybe there's also a tendency in markets to maybe over-interpret the dollar's energy dominance.
I mean, if you just look at the empirical beta of the dollar to oil, yes, it's risen quite a bit from what it used to be, but it's not massive in the same way that it might be for an out-and-out sort of oil exporter. Then also, I feel like, you know, the 2022 comparison for the dollar is kind of definitely flawed. I mean, if that was the lens through which markets were forming their ex-ante expectations for what the dollar was going to do, and it was turbocharged by Fed hikes and then the rest of the world joined in.
And as we know, there is this kind of global dollar financed balance sheet effect that comes to boost the dollar when you're getting a synchronized tightening of financial conditions. That certainly wasn't the case here, as Governor Bailey himself said in that Reuters interview and as central bankers across the world have been doing, you know, the intent has been to kind of want to look through this shock, even for people who were kind of stressed into anticipating a tightening of monthly conditions. So on the whole, I think that that balance sheet bid was absent.
And if you look at real rate differentials as well, I mean, I don't think that the spreads have changed too much in the dollar's favor. So all in all, I mean, yeah, we would have liked to given our tactical stance for the dollar to overshoot a little, but we didn't really get that. But be that as it may, I want to turn our discussion a little bit towards sort of the main topic in my mind for this week, which is we will wait and watch for how long this relief rally extends.
But I think maybe sort of more useful discussion for listeners is where in effects do we think that the effects of this war are going to be a little more longer lasting, a little more durable, even if the ceasefire holds. So for the dollar, for instance, my sense is medium term, the dollar comes out of this conflict net net worse than it was when it went in. So, yes, cyclically, the Fed's been repriced higher and some of the terms of trade gains are real if oil settled, let's say, $90, $95 a barrel.
But those are also the reasons why the dollar rallied meteoric sum in March. So you could argue that some of this has been priced in already and is in the rear view mirror. I think the big questions are what lies ahead?
And from that perspective, you could say, number one, fiscal concerns around the U.S. budget outlook could reemerge as the administration pivots its focus towards the midterms from here. I know there's an implicit sort of political call involved there, but the data point that we have in hand is that President Trump has proposed an FY27 budget that pencils in a 42 percent increase in defense spending. And that's offset very inadequately by proposed cuts to non-defense discretionary spending.
Second, we are getting a lot of questions and meetings around the risk of Gulf countries repatriation of U.S. assets to fund their domestic defense and resilience programs and the related kind of disruption to the petrodollar recycling regime, the rise of PetroYuan as an alternative given the Iranian Hormuz toll regime. These are very heavy topics on which we are doing some more digging internally, but it's entirely possible that the GCC flows in particular don't actually turn out to be a very big deal, at least on the flow basis, given that they've not been a big marginal driver of the U.S. BOP in recent years.
But the interesting thing is that these questions didn't exist on 27th of Feb. And then third, as you exactly mentioned, this relatively contained dollar strength through this episode will incentivize potential FX hedgers of equity portfolios outside the U.S. to potentially raise the hedge ratio. So so net net, this knee jerk risk of short squeeze, notwithstanding, I think there are more questions that the dollar faces today than it did a month or so back.
And so in that same vein, I throw the question back to you, you know, for your block of currencies in Europe, do you see similar, more medium term, durable effects emerge out of this? Yeah, I mean, I definitely see scenarios where there are potential lasting impacts kind of almost regardless of outcome. I mean, if you think about sterling, for example, I mean, that's where we've seen the largest moves in growth and inflation forecasts across G10.
But, you know, in terms of the the shift in our economist forecasts since since the the conflict broke out. But just thinking about it from a scenario perspective, I mean, if we were. If we were to escalate again, obviously, that stagflationary impact would be exacerbated.
But if, as you say, the ceasefire holds, there's this whole issue around UK politics now where. Is there an element of political continuity as the conflict goes on where it's less likely that you get a leadership challenge for PM Starmer if you have a conflict going on in the background for reasons of political continuity? And that's, you know, probably a driver of the odds of Starmer stepping down, having having objectively come down in the betting markets.
But obviously, if a deal is struck and the conflict fades away, there's more room there for Labour, Labour politicians to make a charge. And so I think that still keeps the May 7th local elections very on the table in terms of a key event risk for sterling. And it's something that I think can mean sterling potentially lags the recovery in, say, you know, versus other high beta currencies.
And that political continuity issue is something we've got our eyes on in terms of, you know, how valid the challenge may be there from some of the other candidates like Angela Rayner. And that's where you get into the more bearish risk scenarios for sterling. If you do, if you have an energy shock from the conflict, which is potentially going to push UK CPI up towards 4% and you have a pro-inflationary government policy mix potentially coming on board in the second half of the year on top of that, it's it's it's potentially a bit of a nasty mix.
But that's that's one scenario that we're potentially thinking about. You know, other currencies in my space. I mean, you think about the Swiss franc.
We did see what turned out to be a pretty meaningful shift in FX intervention guidance from the S&B at the March meeting. We we we did probably underestimate that at the time. But, you know, we did get intervention data this week, which showed S&B intervention on the scale of around 11 billion Swiss, which is which is reasonable.
I mean, valuation adjusted. It was it was more than that. And, you know, perhaps comparable to some of the, you know, at least directionally to some of the intervention they were doing during the Russia-Ukraine conflict.
But I think there's a there's, you know, there's a horizon for that in terms of, you know, our view is that as the conflict steps down, the S&B may not be intervening, you know, as much if at all. And that potentially presents a bit of asymmetry for Swiss. I'm not sure you get the rally in Euro-Swiss that people think on a full de-escalation because you're you have to reassess the other side of the distribution in terms of S&B intervention on that outcome.
So that's that's a risk that we're quite conscious of. I think for the Scandis, you know, there's all sorts of things you can say about, you know, the conflict, reinforcing the resilience and growth in Norway that we, you know, there had been a theme before the conflict. You know, if you look again at growth forecast changes since the conflict, Norway's been unchanged versus the rest of G10, which has been downgraded.
So at least as far as JP Morgan forecasts go. And we spoke I spoke earlier on this podcast about, you know, the balance between terms of trade and risk premium for Nokia. You can say for stocky that, you know, there's a clear hit to growth from the energy importer status.
You've had some seasonality issues for stocky as well. And these are all kind of bottoms up factors that you can think about. But I think the overarching theme here is going to be for the Scandis is going to be where the dollar falls out of this.
If we do get, you know, this this creeping U.S. equity underperformance continuing, if the FX hedge ratio story comes back on the table, if the repatriation flow story comes back on the table, that's going to be that's going to be important for the Scandi currencies. So, you know, I'm a bit hesitant to overplay some of the bottoms up factors when, you know, the big picture could be could be, you know, what what does the dollar mean for Scandis? That's all for me on the European space.
So back to you, Arindam. What do you make of, you know, turning turning towards Asia here, the yen, CMY and the rest of the region in Asia? Yeah, thanks, James.
So in Asia, I think the delta and views really comes from down under. So Ben Jarman thinks that, you know, while we're still constructive on the Aussie dollar at the margin, the Aussies domestic underpinnings have been compromised to some extent because of the war and what the RBA has done through the war. So the RBA has already hiked for the second time in the cycle because of this coming spike in oil price inflation.
And there's potentially one more coming, you know, just as the economy is slowing. So this is kind of your classic hiking into a slowdown. And that could compromise and also the financial conditions, domestic financial conditions, underpinnings of the Aussie story.
The other parts of it are still intact. I think the old commodity, the carry, the fiscal strength pieces are all in place. But the domestic story looks a little more wobbly.
And in comparison, New Zealand never benefited from these energy tailwinds to begin with. And the RBA has been patient from the outset. So it's possible that if the ceasefire holds, this knee jerk pullback in Aussie Kiwi that we've seen from around 1.22 or so can extend further.
That's number one. On the other two big ones in North Asia, Yen and CNY, actually the view from both Tokyo and Hong Kong is that the existing views are basically reinforced by what we've seen. So for the Yen, we've had the rest of the world central bank expectations being repriced materially higher.
We'll see what the BOJ does in April, but it's unlikely they'll do anything that upsets the current calculus of about one hike every six months. Hard to see the Yen benefit from that. The energy shock does worsen Japan's terms of trade on a durable basis.
And then most importantly, it does reignite fiscal concerns in terms of how the government is going to keep managing the fallout of this energy shock, which is why we've seen a reconnection of long-end JGBOs versus the Yen correlation in recent times. The intervention risk is still very much there. And I think the MOF should be quite pleased with how well Dolly Yen has held in below 160 through all of these negatives.
But net-net, we don't see our basic relatively bearish Yen storyline changing much. And finally, on CNY, I think China has emerged out of this entire conflict as a relative winner. There's been a bit of a geopolitical halo that's been won as a result of presumably facilitating this ceasefire agreement, according to news reports.
Whether that leads to FII inflows that had fled Chinese markets since 2022 is kind of an open question, but it sort of opens up an upside on the balance of payment side that we didn't really encounter before the conflict. Also, exporters would have seen how well Dolly CNY held below 7.00. It didn't even knee-jerk bounce to 6.95 plus through the conflict, and that would give them confidence.
As we know, Chinese exporters sit on a massive hoard of unsold dollars, and that would give them confidence, even though this period of large seasonal supply of dollars from corporates is over, to keep at the margin chipping away at the dollar hoard. And net-net, I think those forces should keep us relatively well entrenched on the bullish CNY track, even before considering these open questions about Petro-Yuan and CNY as an invoicing currency in global energy trade, etc., that's been doing the rounds in recent times. So, at the margin, slightly less bullish on Aussie.
Similarly, bearish on Yen and remaining constructive on CNY. So, let's leave it there for this week. Thanks to all our listeners for tuning in.
This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures, 2026, JPMorgan Chase & Company, all rights reserved. This episode was recorded on April 10, 2026.