The US dollar fell to a three-month low overnight as traders added to their bets that the Federal Reserve will cut interest rates in the coming periods. Markets are now pricing in a full 25 basis point cut from the Fed in their July meeting, while futures markets still anticipate three 25 basis point cuts by January 2020. This morning the dollar is faring relatively better in what can only be described as a nervous risk-off climate. Reports from the New York Times, that have made their way across global news outlets shortly after, state that President Trump ordered a military strike on Itan in response to Tehran shooting down of a US naval surveillance drone. However, Trump reversed his decision before it was too late. The latest string of events highlights rising tensions in the Middle East that began to simmer on May 8th 2018 when President Trump withdrew the US from the Iran nuclear deal. At the time of writing, the only course of action taken thus far is the banning of US airlines over the Iranian air space, but markets wait in limbo for the official US response.


Just the two of us was written by Grover Washington Jr back in 1982 but has recently taken on a new meaning as the final two candidates emerge blooded from the Tory leadership contest. Pipping Michael Gove to the post by a margin of two, Foreign Secretary Jeremy Hunt made it through to the final stage to face the front-running candidate – Boris Johnson. In the midst of yesterday’s rally on the back of a weakening US dollar post-Fed announcement, the pound took a bit of a stumble. A neutral Bank of England caused this despite their decision to hold rates at 0.75% by a vote of 9-0. However, the rate statement referenced increased downside risks to growth along with a heightened probability of a no-deal exit, which eventually proved a deadly cocktail for the pound which begun to take some losses. All-in-all GBPUSD rallied 0.5% over the course of the day and the coast is now clear from political ambiguity until the new leader is announced in just over a months time.


The single currency profited from weakness in the dollar as it strengthened vis-a-vis the greenback for the second day in a row. It should be noted though that it softened against most other G10 currencies over the week in the aftermath of the dovish European Central Bank squawks on Tuesday. Today brings French, German and eventually Eurozone-wide Flash Purchasing Manager Indices at 10:00 BST which will tell us more about the risks for Q2 growth in the Eurozone.


Bad news for anyone who appreciates world peace, but good news for those with long positions in oil and the Canadian dollar, this is how the flaring up tensions in the Middle-East can be summarized. The rising potential of a military confrontation between Iran at one side and Saudi Arabia and/or the US at the other side increase concerns over the oil supply coming from this region, which is why WTI oil prices currently stand more than 5% higher were they started yesterday morning. Since Tuesday oil prices are up more than 11%, which explains why the loonie currently tops this week’s G10 currency board together with the other oil-sensitive currency; the Norwegian Krone. Today at 13:30 BST we welcome Retail Sales, shedding more light on the strength of the domestic economy.