A temporary halt in hostilities between Iran and Israel has led to a modest improvement in market sentiment, with risk appetite increasing and several major currencies reacting to the news. According to reports, Iran ended its military operations against Israel following an escalation over the weekend, and US President Donald Trump stated that peace talks between the United States and Iran are ongoing, though a US naval blockade of Iranian ports remains in place until a final agreement is reached [2][3]. Oil prices, which had spiked to an intraday high of $93.50 per barrel, retreated to around $90 after the announcement, weighing on commodity-linked currencies such as the Canadian Dollar (CAD) [2].
The British Pound (GBP) registered modest gains of 0.10% on Monday, trading at 1.3349 against the US Dollar (USD), as the Greenback reversed some of its previous gains and the US Dollar Index (DXY) fell by 0.16% to 99.91 [3]. The GBP's advance was supported by improved risk sentiment and speculation that the Bank of England (BoE) may tighten monetary policy by at least 50 basis points in 2026, which helped cap Sterling's decline [3]. Technical analysis indicates that GBP/USD maintains a bearish near-term bias, with resistance at 1.3456 and support at 1.3159 [3].
In the US, the New York Federal Reserve's May Survey of Consumer Expectations showed that households expect inflation to edge down slightly, with 12-month inflation expectations dipping from 3.6% to 3.5%, and 3- and 5-year expectations remaining at 3.1% and 3%, respectively [1]. However, the survey also revealed a weakening job market, as the mean perceived probability of finding a job if laid off fell to 43.7%, its lowest since December of last year [1].
Market participants are closely watching upcoming central bank meetings. The Bank of Canada (BoC) is expected to keep interest rates unchanged at 2.25% for a fifth consecutive meeting, as April inflation came in below expectations and the labor market showed improvement in May [2]. In the US, traders are awaiting inflation data due later this week, with the May Consumer Price Index (CPI) expected to breach the 4.2% threshold, up from April’s 3.8% [3]. The odds of a 25-basis-point Federal Reserve rate hike by the end of 2026 have risen to 92% [3].
Currency markets reflected these developments, with the US Dollar strongest against the Swiss Franc and weaker against the New Zealand Dollar and Euro [1][2]. The Canadian Dollar struggled to benefit from a softer US Dollar due to lower oil prices, while the British Pound edged higher on improved risk sentiment and BoE tightening speculation [2][3].
CONCLUSION
The halt in Iran-Israel hostilities has eased market tensions, leading to a pullback in oil prices and a softer US Dollar. Central bank policy decisions and upcoming inflation data remain in focus, with expectations for rate hikes in both the US and UK. Overall, markets are stabilizing but remain sensitive to geopolitical and monetary policy developments.