There was quite a change in mood within currency markets on Monday. A day that began with apprehension over President Trump’s 48-hour ultimatum ended with relief, as he suddenly announced a five-day pause in strikes against Iranian energy infrastructure. That was after what he described as productive discussions between the two nations, discussions that Iran dismissed as ‘fake news’.
Significant hurdles to a lasting peace remain, but that didn’t stop a big rally in riskier investments like stocks and a swing away from the safe-haven US dollar. Sterling and the euro both strengthened by close to a cent against the US dollar across Monday.
The next twist in the conflict will be this week’s defining moment. Political figures voiced cautious optimism of a resolution, even as Iran initially denied knowledge of Trump’s supposed talks. Stumbling blocks like the future of the country’s nuclear stockpile and the need to quickly resume energy production are likely to prove challenging negotiating points.
The price of oil plummeted by close to $10 per barrel in minutes yesterday morning, despite the fact that the strait of Hormuz remains at a virtual standstill. Even if the conflict ends in the coming days, it will take some time to resume the flow of oil, meaning prices will be affected across most major economies. Brent crude futures climbed above $100 per barrel again this morning.
Yields on UK government debt eased significantly in a sign that inflation pressures had eased. That came just after borrowing costs hit their highest level since the 2008 global financial crisis.
Despite the more positive mood and a rebound in most markets, Monday was a volatile and fast-paced day. Iran’s indication that there had been no formal talks led to some jitters in the afternoon session and show just how much more road this story has to run.
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