A wave of optimism and a weakening dollar against G10 currencies
Although the current situation may not lead to a breakthrough but merely freeze the conflict, oil prices are falling by as much as 5%, and the key European gas is losing up to 7% in value, prompting the EURUSD pair to rebound sharply. What can we expect in the foreign exchange market in the coming days?
Sharp declines in oil and gas prices
In response to the lack of attacks from the U.S., Iran declared a restraint from retaliatory actions and began talks with Oman representatives about regulating shipping in the strategically important Strait of Hormuz. The prospect of a ceasefire led to a strong correction in oil prices. Brent oil on the September contract fell to $90 per barrel, although last week it briefly surpassed $100 per barrel.
This development reduced immediate concerns about a renewed inflationary pressure from the energy commodity market, which translated into a weakening of the U.S. dollar across the broad market.
The EURUSD pair started the day with gains above 1.14, but by 10:00 it had returned above this key level, reflecting the fragility of the current unofficial ceasefire and the ongoing high risk in the region.
Market optimism on fragile foundations
The current improvement in sentiment seems inadequate compared to what is actually happening in the Middle East. President Trump himself noted that continued attacks at the previous level would not lead to any breakthrough. Secondly, Houthi rebels from Yemen attacked Saudi Aramco oil infrastructure over the weekend and threaten further attacks on tankers in the Bab el-Mandeb Strait. Although their destructive power is far less than Iran’s, it still prevents ships from passing through this vital chokepoint.
A lasting agreement between the U.S. and Iran is still far off, and the Houthi are not 100% controlled by Iran. Moreover, fully restoring oil and gas transport from the Persian Gulf countries now seems even more distant than ever. Another missile attack from either side could trigger a renewed rise in oil and gas prices.
The U.S. administration and UN representatives unequivocally emphasize that President Donald Trump has “all options on the table,” and the current pause in strikes is only meant to buy time for negotiations.
Fed decision and a marathon of results in focus
Besides Middle East news, a key reference point for global investors this week will be the Federal Reserve’s Wednesday decision on interest rates. Despite Monday’s dollar weakness, the market still prices the probability at about 1 in 3 (roughly 33%) that the Fed may decide to raise rates during the Wednesday meeting, while the full move is already priced for September. Some commentators expect a particularly hawkish stance from Kevin Warsh and potential votes for a rate hike now. Combined with European inflation data releases and a flurry of earnings from U.S. tech giants (including Amazon, Meta, and Microsoft), the coming days point to potentially heightened volatility in financial markets. If Fed signals prove sufficiently hawkish and hopes for a lasting truce with Iran crumble, the U.S. currency could quickly regain favor among investors seeking a safe haven.
Just minutes before 11:00, the dollar trades at 3.7830 PLN, the euro at 4.3127 PLN, the pound at 5.0447 PLN, and the franc at 4.6410 PLN.
