Instimatch - FX morning commentary - 24/6/25

Good morning

Brent oil prices fell more than 7% to below $70/bbl overnight and is close to retracing the moves seen post the start of the Israel-Iran conflict. Iran fired missiles towards US military bases in Qatar in a retaliatory move, but the key was that this action was quite constrained and also potentially coordinated with key officials including in the US and Qatar, and as such minimising collateral damage and easing concern over further escalation. US President Trump later claiming that Israel and Iran had agreed to a “complete and total ceasefire” starting early today, which will lead to “an official end” to their ongoing conflict. Details of the ceasefire agreement are still sparse at this time and as such the détente and de-escalation is not a done deal. Nonetheless, latest news reports suggest Iran has agreed to the ceasefire and if this is right, the tail risk of more extreme scenarios resulting in significant oil supply disruptions have meaningfully diminished.

Beyond the Israel-Iran conflict, the other crucial market driver was Fed Governor Michelle Bowman’s speech overnight calling for an interest rate cut as soon as July. She said that the inflationary effect of the trade war “may take longer, be more delayed, and have a smaller effect than initially expected”, with ongoing progress in tariff negotiations providing a less risky economic environment to adjust policy. With all those confluence of events, we saw US 10-year yields decline to 4.34%, the Dollar weaken, while risk assets strengthen.

French President Macron and German Chancellor Merz published an op-ed in the FT ahead of this week’s NATO Summit labelled “Europe must arm itself in an unstable world”. France and Germany will reaffirm their support for US efforts to bring an end to the Russian war in Ukraine. But shouldering responsibilities goes beyond Ukraine. France and Germany will aim to reach 3.5% of GDP in defence spending and 1.5% in broader expenses contributing to the defence effort in order to strengthen the European pillar of NATO.

After Monday’s PMIs, we’ll get the German Ifo survey numbers. Yesterday's composite PMI data showed that the German economy improved in June, with the composite indicator rising more than expected to 50.4 from 48.5 in May. Consensus sees the expectations component nudging slightly higher in June. From the US, we have the Conference Board consumer confidence indices, which are also expected to see some improvement. Meanwhile, the NATO summit could bring interesting headlines on defence spending ambitions.

More interesting may turn out to be the long list of central bankers scheduled to speak. Among the ECB speakers are President Christine Lagarde and Chief Economist Philip Lane, while Fed Chair Jerome Powell will deliver a policy testimony before the House.

BoE governor Andrew Bailey and several members of the monetary policy committee are also due to speak today. Bailey will deliver opening remarks at a conference remembering Britain’s return to the gold standard in 1925, with chief economist Huw Pill also speaking later. Bailey is also giving evidence to the Lords Economic Affairs Committee. At separate events, Megan Greene is giving a speech on policy implications of differences in central bank balance sheet management, Dave Ramsden is speaking at a monetary policy forum and Sarah Breeden is having a ’fireside chat’ elsewhere.

The USD Index which measures the value of the greenback against six major currencies, is currently trading at around 98.05 after touching 99.40 intraday. 

EUR/USD rallied back from the 1.1455 area to finish the day at 1.1578 and has extended gains further overnight to above the 1.16 level as the USD weakened broadly, tracking the pullback in oil prices and US yields – the 10Y yield declined around 10bp yesterday.

GBP/USD gains traction to around 1.3560 during the early European session, bolstered by the weaker USD.

USD/JPY in a similar move tumbled from the 148 area to close at 146.15.

For Asia FX markets, what’s interesting is that not all Asian currencies have so far reflected the sharp retracing lower in oil prices. Analysts suggest that PHP, KRW, THB and INR are more sensitive and vulnerable to sharp spikes in oil prices and the logic should be symmetric and works both ways but that has not materialised as yet.

South Korean consumer confidence recovered strongly in June (from 101.8 in May to 108.7), supported by the return of policy normalcy, gains in asset markets, and fresh fiscal stimulus. The composite