A major geopolitical development occurred late Wednesday as US President Donald Trump and Iranian President Masoud Pezeshkian electronically signed a preliminary memorandum of understanding (MoU) aimed at ending hostilities between the US, Israel, and Iran, according to multiple sources [1][2][3][4]. The agreement, confirmed by the White House and reported by the BBC and Reuters, establishes a 60-day window to negotiate a definitive peace deal, with immediate measures including the reopening of the Strait of Hormuz and the lifting of heavy sanctions on Iranian oil exports [3][4]. The MoU was initially signed by US Vice President JD Vance and Iranian Parliamentary Speaker Mohammad Bagher Ghalibaf earlier in the week [1][4]. Pakistan’s Prime Minister Shehbaz Sharif stated that the agreement is taking 'immediate effect,' and a formal signing is expected in Geneva on Friday [2].
The announcement of the peace deal has had a notable impact on global financial markets. The US Dollar (USD) weakened against several major currencies as risk aversion faded. The Canadian Dollar (CAD) inched higher, with USD/CAD trading around 1.4100, supported by both the easing of safe-haven demand and higher oil prices, with West Texas Intermediate (WTI) holding gains at $75.10 per barrel [1][4]. Similarly, the Australian Dollar (AUD) strengthened above 0.7000, with AUD/USD trading near 0.7025, as optimism over the US-Iran deal boosted riskier assets [2]. The British Pound (GBP) also recovered from a two-month low, with GBP/USD retaking the 1.3300 mark, as investors took profits on the USD following the peace news [3].
Despite the positive sentiment, several factors are tempering the market's reaction. The Federal Open Market Committee (FOMC) voted unanimously to keep the benchmark federal funds rate at 3.5%-3.75% [1][2][3][4]. However, the June Summary of Economic Projections and policy statements signaled a hawkish stance, with half of FOMC members expecting at least one rate hike this year and the median estimate for the fed funds rate at the end of 2026 rising to 3.8% from 3.4% in March [1][3]. Newly appointed Federal Reserve Chairman Kevin Warsh emphasized a commitment to restoring price stability [1][4]. These hawkish signals could limit further USD declines and cap gains in other currencies [1][2][3].
In the commodities market, WTI crude oil prices edged higher despite the easing of Middle East tensions and supply concerns, but analysts warn of potential downward pressure. The International Energy Agency (IEA) projects a significant global oil supply surplus by 2027, with supply expected to increase by 8 million barrels per day against a demand recovery of just 2 million barrels per day, driven by post-war recovery in Gulf exports and surging non-OPEC+ output [4].
On the monetary policy front, the Reserve Bank of Australia (RBA) kept its Official Cash Rate at 4.35% after three consecutive hikes earlier in the year [2], while the Bank of England (BoE) is expected to hold rates steady following UK inflation data showing headline CPI at 2.8% YoY in May and core CPI at 2.6% YoY [3].
CONCLUSION
The preliminary US-Iran peace deal has eased geopolitical tensions, leading to a weaker US Dollar and gains in risk-sensitive currencies and oil prices. However, hawkish signals from the Federal Reserve and projections of a future oil supply surplus are tempering market optimism. Investors remain cautious as central banks maintain a tightening bias and await further developments in the peace negotiations.