FUNDAMENTAL OVERVIEW USD: The US dollar regained some ground as both Trump and Iran rejected the respective war-ending proposals calling them unacceptable and leaving the two sides miles apart on any potential agreement.
Moreover, Israeli PM Netanyahu confirmed that the removal of Iranian nuclear material remains an active war priority, and separate reports indicated that Trump told Netanyahu directly he wants to go in on Iranian nuclear sites
This kind of headline noise has been going on for several weeks and kept the price action in rangebound mode as traders continued to wait for new developments before picking a direction. Looking ahead, the Fed is slowly abandoning the easing bias amid resilient US data and elevated energy prices. The reopening of the Strait could weigh on the greenback in the short-term as oil prices will likely crater and rate cut bets will increase.
After that though, the focus will quickly turn back to the Fed and the economic data. With the end of the war, the increase in economic activity could keep inflation higher for longer and eventually even require rate hikes to bring it sustainably back to the 2% target that the Fed has been missing since 2021. There’s also another scenario where the Strait remains closed for longer and oil prices stay elevated with the risk that the Fed turns hawkish and gives the greenback a strong boost given the bearish positioning on the dollar.