Say it quietly, but the war in Iran appears to be edging slowly towards an eagerly awaited finale, much to the relief of market participants.
Investors escaped to the refuge of the safe haven US dollar throughout most of March a mid fears that the conflict could run and run and the Strait of Hormuz remain blocked for a prolonged period. Since then, news headlines have taken a distinct turn for the better. A ceasefire was not only agreed upon inApril, but extended on an indefinite basis, and is holding for now, despite appearing relatively fragile at times. Peace talks are also progressing, with reports suggesting that a framework deal could be imminent after the White House presented a 14-point peace proposal to Tehran on Wednesday.
Our baseline scenario for a war that is more-or-less resolved in the near- to medium-term appears to be coming to pass.Trump’s recent grandiloquence suggests to us that the president is seeking a relatively swift face-saving exit strategy, while we have long contested that there is a time limit as to how long Iran can keep up its strategic act of self destruction.At current levels, investors appear firmly of the opinion that the worst of the conflict is in the rear view mirror. The dollar has returned essentially back to where it was pre-war, while US equity indices have roared back to fresh record highs.
Explore the full May FX market outlook here.
