A two-week ceasefire between the US and Iran has significantly impacted currency markets, weakening the US Dollar's safe-haven appeal and fueling rallies in risk-sensitive currencies such as GBP/USD and AUD/USD [1][2]. GBP/USD rose by 0.31% on Thursday, reaching the mid-1.3400s and briefly touching 1.3480 before pulling back, with the 1.3400-1.3450 zone acting as a strong resistance [1]. Similarly, AUD/USD climbed 0.56%, extending its winning streak to four sessions and approaching the 0.7100 level, its highest since late March [2]. The ceasefire, which included President Trump's agreement to pause strikes in exchange for Iran reopening the Strait of Hormuz, has been the dominant driver behind these moves [2].
Thursday's release of the February Personal Consumption Expenditures (PCE) report showed headline inflation at 2.8% year-over-year, above the 2.6% consensus, while core PCE was 3.0% year-over-year, matching forecasts but remaining well above the Federal Reserve's 2% target. Both headline and core monthly readings were 0.4%, firmer than expected [1][2]. Despite the hotter-than-expected inflation data, the US Dollar did not rally meaningfully, as markets remained focused on the geopolitical developments rather than backward-looking inflation figures [1][2].
USD/JPY rose 0.28% on Thursday, testing the 20-day Simple Moving Average at 159.19 before retreating to 158.99, as improved risk appetite diminished the Dollar's safe-haven status [3]. Technical analysis suggests downside risks for USD/JPY, with a quasi-head-and-shoulders pattern forming and the Relative Strength Index trending lower. The Japanese Yen was the strongest against the US Dollar this week, with USD/JPY down 0.41% [3].
Looking ahead, Friday's March Consumer Price Index (CPI) release at 12:30 GMT is expected to be the week's most consequential event. Economists forecast headline CPI to jump 0.8% month-over-month, pushing the year-over-year rate to 3.1%-3.3%, largely reflecting the energy price shock from the Iran conflict. Core CPI is expected at 0.2%-0.3% month-over-month and 2.7% year-over-year [1][2]. Analysts note that a soft core CPI would support the view that inflation is energy-driven and temporary, which would be positive for risk currencies like GBP and AUD. However, a surprise to the upside in core CPI could revive US Dollar strength and rate hike expectations [1][2].
CONCLUSION
The US-Iran ceasefire has triggered a risk rally, weakening the US Dollar and boosting GBP, AUD, and JPY. Despite hotter-than-expected PCE inflation data, markets remain focused on geopolitical developments. The upcoming US CPI report will be pivotal in determining whether the Dollar's weakness persists or reverses, depending on core inflation trends.