Peace or no peace, that is the question

Good morning

It was another scorcher yesterday with temperatures here up to 35°c according to my car in the afternoon.  We didn’t get any of the thunderstorms we’d been warned about but temperatures are likely to be lower for the next few days, still in the high-20’s mind you. 

Peace in Iran is still up in the air as Iran accuses US of breaking the ceasefire with its recent military strikes on Iranian boats and missile sites.  This didn’t stop US equities from making new highs, oil prices have also slipped back, although the USD dollar is not as weak as I’d have thought if a peace deal really was on the agenda.  Reports are that Iran has said it will sign a deal if some $24bn of frozen assets are released.  GBPUSD is currently 1.3450, a touch lower than this time yesterday although EURUSD is a smidge higher at 1.1645, leaving GBPEUR off its recent highs at 1.1550. 

Some are already likening Trump’s attempts in Iran to Putin’s invasion of Ukraine, both leaders seemingly underestimating their opponents, unable to secure a quick and decisive victory.  There are concerns that Putin will expand the war beyond Ukraine, with Baltic states at risk.  Meanwhile, our own GCHQ boss has warned Russia are increasing their ‘attacks’ on infrastructure and democracy across Europe, looking to spread disruption and instability.

Overnight RBNZ kept rates unchanged at 2.25% as had been widely expected.  I’d warned yesterday that RBNZ may strike a more hawkish tone and this has proved to be the case, with three out of six members voting for a rate rise this time, leaving the deciding vote to Breman.   While she did choose to leave rates alone this time, the accompanying statement made it clear that all members felt interest rates would need to increase to counter inflation, it was more just a matter of timing, ie this meeting or the next.  Rates increases are likely to be sooner and larger than expected in February.  NZD pushed higher as you’d expect, GBPNZD dropped from 2.3050 to 2.2900,

AUDNZD dropped from 1.2280 to 1.2160 led by the RBNZ comments but also with a help from Aussie inflation which came in surprisingly softer overnight.  GBPAUD has gained alomsot 100 pips from overnight lows, now around 1.8830.

Feds Kashkari has said that a prolonged war with Iran could lead to a series of US rate rises, a view echoed by may central bankers although I still believe there are those who would be happy to overlook higher energy price inflation if it did not filter into price rises elsewhere.  Still, BoJs Ueda has warned that overlooking oil prices is a dangerous game as it does tend to have an secondary impact on inflation across the board.  On the subject of BoJ, well learn on Friday the size of intervention through late April and May which took USDJPY from 160.70 to 155.00.  It was decisive action but had a relatively short-term impact, with USDJPY currently around 159.35, its highest level since that intervention.

It’s a very sparse economic calendar today which suits as I’m out and about this afternoon.  Can’t quite come to terms with the fact we’re nearly at the end of May already, indeed many of our currency programs that facilitate option transactions expire today for settlement at month end.  We’ve seen quite a range since May positions were introduced as far back as November last year, for example GBPUSD has seen a low around 1.3100 and a high around 1.3860 in that time.  Still, for most of that time we’ve had a tighter range, more like 1.32-1.36ish.  We’ll know our finals rates at expiry time this afternoon.

Have a great day…

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