The United States and Iran have reached a peace agreement that is set to reopen the Strait of Hormuz and end military operations on all fronts, including Lebanon, according to official statements from both countries and confirmation by Iran’s Supreme National Security Council [1][2][3][4]. US President Donald Trump announced the lifting of the US naval blockade on Iranian ports, with the agreement scheduled to be signed in Switzerland on Friday, June 19 [1][2][3][4]. This breakthrough has triggered a surge in risk sentiment across global markets.
The Euro (EUR) climbed above 1.1600 against the US Dollar (USD), trading near 1.1610 during early European hours, as the peace deal improved risk appetite and weakened the Greenback [1]. The Australian Dollar (AUD) also strengthened, with AUD/USD gaining around 0.5% to trade near 0.7080, and AUD/JPY rising above 113.00, supported by the risk-on environment [3][4]. The Indian Rupee (INR) surged, with USD/INR plunging to near 94.60, as oil prices nosedived following the announcement. The MCX Crude Oil contract expiring June 18 dropped 5.5% to 7,630, its lowest in almost two weeks [2].
The peace deal has had significant market implications. The decline in oil prices is particularly beneficial for oil-importing economies like India, boosting the appeal of their currencies [2]. Foreign Institutional Investors (FIIs) in India have slowed their selling pace, with average daily outflows dropping from Rs. 4,643 crore to Rs. 1,534.63 crore in the last two trading days [2]. In the US, the CME FedWatch tool shows that the probability of a Federal Reserve rate hike in December has fallen to 27% from 40% a week ago, reflecting reduced inflation concerns after the peace deal [3].
Looking ahead, the US Federal Reserve is widely expected to keep its benchmark interest rate unchanged at 3.50% to 3.75% at its upcoming meeting on Wednesday, with markets closely watching new Fed chair Kevin Warsh’s press conference for policy cues [1]. The European Central Bank (ECB) recently hiked rates for the first time since September 2023 and may raise them again in July if inflation pressures persist due to the Middle East situation [1]. In Australia, the Reserve Bank is expected to keep rates unchanged at its Tuesday meeting, with fading expectations for further tightening, while the Bank of Japan is projected to raise rates to 1.0% in June and potentially to 1.25% in Q4, according to a Reuters poll [4].
Technical analysis indicates that the risk-on rally may continue, but further upside in the AUD could be capped by central bank policy expectations, and the EUR/USD pair could face headwinds if the Fed adopts a hawkish tone [1][3][4].
CONCLUSION
The US-Iran peace deal has sparked a broad rally in risk assets, driven by plunging oil prices and improved global sentiment. Currencies of oil-importing and commodity-linked economies have strengthened, while expectations for further central bank tightening have eased. Market participants are now focused on upcoming central bank meetings for additional guidance.