On Thursday, global financial markets experienced significant volatility following US President Donald Trump's announcement that he had canceled planned military strikes on Iran and declared that a peace deal was nearly finalized. This decision came after two days of escalating conflict, with US forces striking Iran on Tuesday and Wednesday, and Tehran responding with missile attacks on American bases in Bahrain, Kuwait, and Jordan. Trump had earlier threatened to seize Kharg Island and Iran's energy export infrastructure but reversed course just after 17:30 GMT, stating that a deal was all but done. However, Iranian officials have not confirmed any agreement, with the semiofficial Fars agency initially reporting that no text had been approved, later suggesting high odds of approval since Washington accepted Iran's draft, but still conceding that no final answer exists. The naval blockade of Iranian ports remains in place, and Tehran has not issued any official statements corroborating the US claims. Washington is preparing for a potential signing ceremony in Europe over the weekend, with the Vice President expected to attend and the reopening of the Strait of Hormuz contingent on the deal's signature, but this remains unconfirmed by Iran [1][2][3].
The market reaction was swift and pronounced across major currency pairs. The British Pound (GBP/USD) surged more than a full big figure from its lows, closing above the 200-day EMA at 1.3400 and stalling just below the 50-day EMA near 1.3450. This rally was attributed entirely to the geopolitical developments, as no UK-specific news contributed to the move. Technical indicators showed the Stoch RSI in oversold territory, suggesting potential for further gains if positive headlines persist. However, upcoming UK economic data, including April GDP (consensus: -0.1% MoM), Industrial Production, and Manufacturing Production, could test the sustainability of these gains [1].
The Japanese Yen (USD/JPY) also benefited, dropping a full big figure to just above 159.50 within two hours of the announcement, despite earlier US inflation data that would typically support the Dollar. The May Producer Price Index (PPI) came in at 1.1% MoM versus forecasts of 0.7%, following a strong CPI report, and rate futures shifted slightly toward a Fed hike. However, the bond market interpreted the inflation as a temporary 'war surcharge,' leading to a 3% drop in Brent crude prices (to near $90/barrel) and a 7 basis point decline in the two-year Treasury yield. The White House suggested that inflation pressures would ease once the conflict ends, reinforcing the market's focus on geopolitical rather than domestic drivers [2].
The Australian Dollar (AUD/USD) rallied by roughly three-quarters of a cent off its lows, reflecting its status as a risk proxy. The move was similarly driven by the de-escalation headlines, though skepticism remains due to the lack of Iranian confirmation and the history of short-lived ceasefires in this conflict. Previous attempts at de-escalation, such as the March and April pauses, were quickly undermined by renewed hostilities [3].
The Euro (EUR/USD) rose over 0.36% to 1.1579 as the US Dollar weakened on the news. Technical analysis indicates that while buyers are gaining strength, the RSI remains below the neutral 50 level, suggesting caution. A break above 1.1600 could open the way to further resistance at 1.1655-1.1676, while failure to clear this level could see a retest of 1.1500 or lower. The Euro was the strongest against the Canadian Dollar on the day, and the heat map showed broad-based gains for the Euro and other risk-sensitive currencies against the US Dollar [4].
Across all sources, a key theme is the market's reliance on headline-driven moves, with the sustainability of the rallies in GBP, AUD, and EUR contingent on confirmation of a peace deal by Iran. Until then, technical and fundamental uncertainties remain elevated.
CONCLUSION
Markets rallied sharply on Trump's cancellation of US strikes on Iran and his claim of an imminent peace deal, but the lack of Iranian confirmation leaves the situation unresolved. Currency gains in GBP, AUD, and EUR were driven by risk-on sentiment, while the Yen strengthened as safe-haven demand eased. The market's next moves will depend on official confirmation from Tehran and upcoming economic data releases.