Key Takeaways

• Dollar retreats: The DXY fell 0.2% to 99.52 — its third consecutive losing session — as the wartime safe-haven premium unwound.
• Euro and pound at weekly highs: Both currencies climbed to their strongest levels since June 5.
• Peace framework confirmed: Washington and Tehran agreed to end hostilities, lift the U.S. blockade, and reopen the Strait of Hormuz.
• Switzerland signing June 19: Both sides will formally sign the accord in Switzerland on Thursday.
• Brent crashes, yields slide: Collapsing energy prices eased stagflation fears and eroded the dollar’s structural advantage.
• Euro’s energy dividend: Lower oil import costs could allow the euro to reclaim lost ground as the energy burden on the Eurozone economy eases.
• AJ Bell’s Mould: “Markets have finally got the news they’ve longed for since the beginning of March as the end of the Iran war is more clearly in sight.”
• December Fed hike odds fall: Probability drops to 49% from 69% a week ago, per CME FedWatch.
• All eyes on Warsh: The Fed is universally expected to hold rates, but the updated dot plot and Chair Kevin Warsh’s press conference will be microscopically parsed.
• BOJ to hit 1% Tuesday: The Bank of Japan is expected to raise its benchmark rate to its highest level in over 30 years.
• RBA, BOE, SNB all expected to hold: A steady hand from Australia, the U.K., and Switzerland.
• Six central banks this week: The U.S., Japan, Switzerland, Sweden, Norway, and Australia all deciding on rates.
• Yen edges higher: USD/JPY ticked up 0.1% ahead of Tuesday’s BOJ decision.
• Aussie dollar advances: AUD/USD rose 0.4% to a more than one-week high on improved risk appetite.

The euro and British pound rose to more than one-week highs on Monday as a landmark interim peace accord between Washington and Tehran stripped the greenback of its wartime safe-haven premium, ahead of a blockbuster week of central bank decisions.

The U.S. Dollar Index retreated 0.2% to 99.52 — marking its third consecutive session in the red — while both the euro and pound climbed to their highest levels since June 5.

The “War Trade” Unwinds

Washington and Tehran agreed on a framework to end their conflict, lift the U.S. blockade of Iran, and reopen the Strait of Hormuz — a critical artery for global oil shipments. Both sides will meet in Switzerland on June 19 to formally sign the accord.

With Brent crude futures cascading lower and global bond yields sliding, the dollar took a back seat as collapsing energy prices alleviated fears of a persistent inflation resurgence. With that stagflationary threat easing, the greenback’s structural advantage could be tested.

This macro shift opens the door for a revitalized euro to reclaim lost ground via a lower energy import bill.

“Markets have finally got the news they’ve longed for since the beginning of March as the end of the Iran war is more clearly in sight,” said Russ Mould, investment director at AJ Bell.

Central Bank Bonanza Begins

The unwinding of the “war trade” leaves investors laser-focused on a slate of central bank meetings this week. Monetary policy decisions are due in the United States, Japan, Switzerland, Sweden, Norway, and Australia.

In light of the imminent peace accord, traders are shifting their focus away from immediate policy outcomes and onto how central bankers recalibrate their forward guidance.

While the Fed is universally expected to hold interest rates steady, markets will microscopically parse the updated dot plot economic projections and the press conference delivery of Fed Chair Kevin Warsh.

Traders now see a 49% probability of a Fed rate hike by December — down from 69% a week earlier — according to the CME FedWatch tool.

Across the Pacific, the Bank of Japan is widely expected to lift its benchmark interest rate to 1% on Tuesday — a milestone that would mark its highest policy rate in more than 30 years. In contrast, the Reserve Bank of Australia, the Bank of England, and the Swiss National Bank are all forecast to maintain a steady policy hand.

The yen edged 0.1% higher against the dollar, while the risk-sensitive AUD/USD advanced 0.4% — hitting a more than one-week high on improved risk appetite.