Iran and US agree deal to end the war before Central Banks Take the Wheel
Key Highlights
- GBP starts the week steady, with GBP/USD around 1.34 and GBP/EUR around 1.16.
- The US and Iran have reached a preliminary peace agreement, with the Strait of Hormuz set to reopen following the signing of a ceasefire agreement later this week. Oil prices have fallen sharply on the news, reducing concerns over energy supply disruptions and easing inflation pressures globally.
- The Fed and Bank of England decisions are the main events this week.
- The ECB has turned more hawkish after raising rates, supporting EUR sentiment.
- Sterling remains caught between sticky inflation risks and softer UK growth.
- The dollar may stay volatile as markets reassess Fed policy and risk appetite.
Market Recap
FX markets were driven last week by central-bank repricing, inflation concerns and geopolitical developments. The euro found support after the ECB raised rates, signalling that inflation risks remain the priority despite softer growth expectations. Sterling was mixed: GBP/USD held near 1.34, while GBP/EUR traded close to 1.16, with UK data showing the economy contracted in April and markets increasingly focused on this week’s Bank of England meeting. The dollar was choppy, initially supported by inflation and Fed rate expectations, before easing as improved risk sentiment reduced demand for safe-haven assets. Overall, EUR was the more resilient performer, GBP remained rangebound, and USD direction was heavily tied to Fed expectations and global risk sentiment.
Our Thoughts for the Week Ahead
Alongside the Federal Reserve and Bank of England meetings, markets will be closely monitoring developments surrounding the newly announced US-Iran peace agreement. The proposed reopening of the Strait of Hormuz removes a major source of geopolitical risk that has driven oil prices higher throughout the spring. Following the announcement, Brent crude fell more than 4%, as traders began pricing in the return of disrupted oil supplies to global markets.
For central banks, lower energy prices could provide some welcome relief. The surge in oil prices caused by the conflict had raised concerns that inflation would remain elevated for longer, potentially forcing the Federal Reserve, ECB and Bank of England to maintain restrictive policy settings. With energy costs now expected to moderate, markets are beginning to reassess the likelihood of further rate hikes and are increasingly focused on the timing of future rate cuts.
For currency markets, the immediate reaction has been broadly negative for the US dollar as safe-haven demand eases, while risk-sensitive assets and equities have benefited. Sterling and the euro may find support if lower energy prices improve growth expectations across Europe, although central bankers are likely to remain cautious until there is evidence that lower oil prices are feeding through into headline inflation. ECB policymakers have already warned that any inflation relief from lower oil prices could take several months to materialise.
Overall, the peace agreement has shifted the market narrative from energy security and inflation risks towards growth prospects and the potential for a more dovish policy outlook later in 2026. However, investors will remain alert to any setbacks in negotiations before fully pricing out geopolitical risk.
Economic Calendar
Monday 15th June
8:30AM EUR ECB President Lagarde Speaks
Tuesday 16th June
No major data releases scheduled.
Wednesday 17th June
7:00AM GBP CPI y/y
1:30 PM USD Core Retail Sales m/m
1:30 PM USD Retail Sales m/m
2:30 PM USD President Trump Speaks
7:00 PM USD Federal Funds Rate
7:00 PM USD FOMC Economic Projections
7:00 PM USD FOMC Statement
7:30 PM USD FOMC Press Conference
Thursday 18th June
7:00AM GBP Claimant Count Change
7:00AM GBP Average Earnings Index 3m/y
12:00PM GBP Monetary Policy Summary
12:00 PM GBP MPC Official Bank Rate Votes
12:00 PM GBP Official Bank Rate
1:30PM USD Philly Fed Manufacturing Index
1:30PM USD Unemployment Claims
Friday 19th June
7:00AM GBP Retail Sales m/m