Following the start of a tense ceasefire between Iran and Israel, the dollar saw losses on Tuesday as traders moved their money out of the safe haven currency. At one point the dollar was down more than 1% against the pound, though that settled out to a 0.4% loss by the end of the day.
The pound was also up on the euro, however, gaining 0.3% over the course of the day.
Following last week’s decision to hold the current interest rate, Bank of England Governor Andrew Bailey told the House of Lords Economic Affairs Committee that US president Donald Trump’s tariffs are creating an “unpredictable” situation.
The worldwide pause on Trump’s tariffs is due to expire on July 9th, with only the UK so far managing to sign a trade agreement with the US. And even that hasn’t been implemented yet. Bailey told the committee “Where is this is going to go to, I’m afraid we don’t know at this stage.” This uncertainty makes it difficult to gauge if and when future interest rate cuts may come.
Over in the US, Federal Reserve Chair Jerome Powell has come to a similar conclusion. In testimony to Congress following last week’s decision to hold interest rates steady, Powell said “Policy changes continue to evolve, and their effects on the economy remain uncertain.”
Thursday will see the US release GDP growth rate data that may show some of the initial impact of tariffs. Though, with no clear sign of what will happen when the pause ends at the start of July, the impact of the tariffs is far from over.
The euro benefitted from the Middle East ceasefire with traders swapping their dollars and oil for shares in European companies. Meanwhile, longer tail data suggests the German business community is feeling more confident about the bloc’s outlook, with survey sentiment rising to the highest level in nearly a year.
However, German consumer confidence data scheduled for release on Thursday is forecast to dip, showing a disconnect between how businesses feel about the economy and the average person on the street.
So, even with Iran and Israel settling into a standoff, there are many unpredictable forces playing on the markets right now.
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