FX Daily: A Much More Cautious De-Escalation Trade

FX markets are trading US-Iran de-escalation news with caution as a hawkish Fed outlook supports the USD. Weak Australian data reinforces an RBA pause while European rates remain capped by noncommittal ECB commentary.

Key Takeaways

• 1.Markets are reacting cautiously to headlines about a potential US-Iran de-escalation, showing less conviction than previous attempts to trade peace deals.
• 2.A hawkish Fed backdrop, supported by April minutes suggesting possible future hikes, is keeping the US Dollar resilient despite geopolitical headlines.
• 3.A weak Australian jobs report and contracting PMIs support a cautious 'pause' stance from the RBA, though AUD/USD upside potential remains due to USD front-end yield risks.

Table of Contents

• USD: More resistant to de-escalation headlines
• EUR: ECB won't promise a July hike
• AUD: Soft jobs report endorses RBA pause
• CEE: Rates confirm close link to oil prices in relief
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