Markets have been cheering the US-Iran framework deal to end their conflict, which sent oil prices to the lowest levels since the early days of the conflict.
Markets anticipated and news over the weekend confirmed that a peace agreement between the US and Iran was finally within reach this time. Oil prices cratered, bonds rose, stocks soared, the SpaceX IPO was executed without a hitch, and almost every major currency worldwide rose against the US dollar, led by sharp gains in emerging market currencies. However, the dollar has proven remarkably resilient overall. The outperformance of the US economy and a sense that institutional degradation in the US is not as bad as feared have restored some of the greenback's luster. It has only given up a small fraction of its war gains against European currencies. Emerging market currencies, by contrast, have generally performed much better through the entire war-and-peace cycle.
While the ECB meeting last week turned out to be the non-event everyone expected, this week's Federal Reserve meeting promises to be quite lively. Rates will almost certainly be left unchanged by the FOMC on Wednesday, but the sharp dissent among voting members about the next move will be in focus. It will also be a big week in the UK, as May inflation data is released on Wednesday, followed by the Bank of England's June meeting on Thursday, in addition to the by-election that will decide whether Andy Burnham can challenge Keir Starmer for the Labour Party leadership. Major central bank meetings will thus compete for traders' attention with the fallout from the US-Iran agreements, the full details of which have yet to be released.
GBP
The recent trend of general sterling outperformance relative to European currencies will be seriously tested this week. Key news are expected in the macroeconomic, monetary and political fronts. The inflation report for May, out on Wednesday, will colour the key Bank of England meeting the following day. No change is expected, but the number of hawkish dissents from the Monetary Policy Committee (MPC) will provide key information on the likelihood of hikes this year in the UK.
Finally, Andy Burnham's win in the Makerfield by-election on Thursday is far from a sure thing, though he is the odds-on favourite. A surprise defeat by Starmer's challenger would probably bring about a quick pop in the pound. All in all, it will be one of the busiest weeks for sterling in 2026.
EUR
The ECB hiked rates and succeeded in avoiding committing in any way to future moves. The communications were somewhat hawkish, though the deal between the US and Iran and the subsequent decline in oil prices caused markets to backtrack on their expectations for two more rate increases this year. The aforementioned deal is an unambiguous positive for both the Eurozone economy and the common currency, though the latter's reaction so far has been underwhelming.
This week is light in news there, though there may be revisions to the June inflation data, and the ZEW economic survey may see the first uptick on peace news optimism. We expect the euro to trend towards the top of its recent range, buoyed by the peace agreement and investor optimism.
USD
While headline inflation rose to 4.2% due to the energy price spike, the core subindex had better news for the Federal Reserve, staying just below 3% and not showing broader second-round effects. However, producer prices continue to show inflation spreading through the supply chain.
High inflation and resilient economic data will give the hawks ammunition at this week's FOMC meeting, while the doves will take heart from the peace agreement and the sharp fall in future energy prices, which will mechanically undo most of the price spike. We do expect the dollar to resume its gradual trend down as the support from safe havens flows reverses at least partially, and the coming massive AI IPOs add to the endless supply of Treasury debt in expanding the amount of dollar assets looking for a buyer.
CNY
Improved sentiment amid hopes for a US-Iran deal benefited higherbeta currencies more than the yuan, which was one of the worstperforming currencies in recent days. Relative to the dollar, however, the currency breached its recent highs. Last week brought two important pieces of data from China: May trade and inflation. The former showed both exports and imports accelerating (to 19.4% and 27.4% YoY, respectively, in dollar terms). A rise in exports (which beat expectations by more than imports did) is encouraging. The data also confirms a trend of China moving up the value chain, with high-tech shipments growing particularly robustly.
Inflation data, meanwhile, did not rock the boat – PPI inflation climbed for the third month, to 3.9% amid the energy shock and stronger demand for computing power. Consumer inflation surprised marginally to the downside, confirming that price pressures remain muted amid firms' limited ability to pass higher costs onto buyers. Looking ahead, attention will be mostly on the mid-month May data dump on Wednesday, with expectations rather downbeat.
Deep dives and expert insights:
- G10 currency market report - Get the latest analysis on major currencies.
- FX Monthly - June 2026: Iran, inflation and a managerial debut
- FX Update: Labour Leadership Crisis
- ECB June Meeting Reaction
