Conflict Eases Over Weekend / SNB On Hold Until The End Of 2027

OVERVIEW : Monday, July 27th, 26’

Financial markets began the week on a firmer footing after the US paused strikes against Iran over the weekend, easing immediate escalation concerns and supporting a broad improvement in risk sentiment. US equity futures gapped higher, oil prices slipped lower while Treasury yields remained supported despite President Trump signalling renewed negotiations with Tehran. Despite the improvement in sentiment, uncertainty remained elevated after Iran reiterated that the Strait of Hormuz remains closed, while reports suggested the US is giving diplomacy only a limited window before considering further action. The geopolitical backdrop remained fluid throughout the session. Iran and the US continued exchanging messages through mediators, while Saudi Arabia intercepted drones targeting its oil infrastructure, with the Houthis claiming responsibility. Later reports also suggested Pakistani intelligence believes the US could still order a ground offensive against Iran, reminding markets that the risk of renewed escalation remains high despite the current diplomatic efforts.

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US DOLLAR

USD remained underpinned throughout the day despite the improvement in broader risk sentiment, with uncertainty surrounding the Middle East conflict and positioning ahead of this week's FOMC helping to support the currency. While crude prices retreated following the weekend pause in US strikes on Iran, Treasury yields failed to decline proportionately, suggesting markets continue to expect a relatively hawkish message from the Fed. The resilience in yields, combined with lingering geopolitical uncertainty, kept the Dollar supported despite the softer energy backdrop.

Data:

  • US Durable Goods Orders MoM (Jun) M/M 0.3% vs. Exp. 1.6% (Prev. -4.5%).
  • US Durable Goods Orders Ex Transp MoM (Jun) M/M 0.6% vs. Exp. 0.9% (Prev. 1.3%).
  • US Durable Goods Orders ex Defense MoM (Jun) M/M 0.3% (Prev. -4.6%).


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EURO

EUR remained relatively well supported on the margin throughout the day, underpinned by a firmer domestic backdrop. German Ifo data surprised modestly to the upside, suggesting business sentiment continues to stabilise, while ECB's Kazimir maintained a hawkish tone, arguing that policymakers need to act before second-round inflation effects become visible and that at least one further rate hike is required

Data:

  • German Ifo Expectations (Jul) 86.7 (Prev. 84.1).
  • German Ifo Current Conditions (Jul) 86.5 (Prev. 87.0).
  • German Ifo Business Climate (Jul) 86.6 vs. Exp. 86.1 (Prev. 85.6).


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GREAT BRITISH POUND

GBP traded firmer through the Asian session but surrendered those gains later in the day as domestic policy headlines weighed on sentiment. Markets remained focused on Thursday's BoE meeting, where another hold is widely expected, with attention centred on the vote split and whether policymakers deliver a more hawkish message than currently anticipated. Political developments also pressured Sterling after the government outlined plans to tighten welfare eligibility in an effort to reduce spending, while reports that proposals to scrap council tax and stamp duty had been ruled out did little to improve confidence.

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AUSTRALIAN DOLLAR

AUD remained well supported throughout the day despite the firmer Dollar, likely benefiting from improving sentiment towards China.

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CANADIAN DOLLAR

 CAD pressured on the day, tracking the decline in crude prices as the easing geopolitical risk premium weighed on the oil complex.

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NEW ZEALAND DOLLAR

NZD was the weakest G10 performer on the day, pressured by the firmer Dollar while also underperforming its antipodean peer.

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JAPANESE YEN

JPY caught a bid on the day as the lack of further escalation between the US and Iran provided support for the currency. Domestically, PM Takaichi reiterated that the government stands ready to take further measures to cushion the economic impact of the Middle East conflict, while adding that strengthening Japan's growth potential would help improve confidence in the Yen.

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SWISS FRANC

CHF underperformed on the day after Bloomberg reported that the SNB is expected to keep interest rates at the zero lower bound until the end of 2027, significantly extending expectations for an unchanged policy stance. The report reinforced the Franc's structural yield disadvantage by signalling that the SNB is unlikely to respond to the recent repricing higher in global interest rate expectations, despite the renewed rise in energy prices. Markets largely focused on the prolonged policy outlook, with the report also noting that the SNB is only expected to begin gradually raising rates after 2027.