CAPITALDIGEST MARKET REVIEW, 15/06/2026

POUND HEADS FOR WEEKLY RISE AS INVESTORS SHRUG OFF SOFT GDP, FOCUS ON IRAN PEACE

The pound headed ​towards its strongest weekly performance in nearly a month on Friday, taking advantage of a dip ‌in the dollar driven by optimism that a Middle East peace deal may be in the offing. Sterling offered little reaction to data that showed the British economy may be starting to feel the impact of the Iran war. The economy contracted by 0.1% in April, its first ​monthly drop since August, as the war-related cancellation of Formula 1 Grand Prix races and other Gulf ​sporting events delivered a heavy blow to the British entertainments industry, according to the Office ⁠for National Statistics. “Perhaps the best that can be said of today’s figures is that we can ‘look through’ them in ​the hopes that the latest Iran deal news proves more durable, suggesting energy costs will ease and growth will ​recover,” Chris Beauchamp, chief market strategist at trading platform IG, said. Next week could be key in determining the near-term direction of UK markets, including sterling, which on Friday was a touch weaker against the dollar at $1.3403, but still set for a weekly gain of ​0.5%, the most in a week since mid-May. A local election could result in a serious contender for Prime Minister ​Keir Starmer’s job, as the Labour leader deals with near-rebellion within his own ranks and record voter dissatisfaction over his handling of ‌the ⁠economy. The June 18 by-election in the town of Makerfield could pave the way back to Westminster for Greater Manchester Mayor and Labour candidate Andy Burnham, who many in markets see as favouring more expansive fiscal policy than Starmer. The UK already has very little financial wiggle room and borrowing costs are eye-wateringly high. The Bank of England meets on June 18 and ​is widely expected to leave ​UK rates unchanged, unlike ⁠the European Central Bank, which raised euro zone rates by a quarter point on Thursday in a well-telegraphed move. Data on inflation and consumer spending in the run-up to the ​decision could set the mood. Until March, UK consumer price pressures had been the most ​intense among the ⁠Group of Seven richest nations for the better part of four years. In April, U.S. consumer price inflation topped that in Britain, and in May hit a three-year high of 4.3%. Economists at RBC Capital Markets say they expect UK inflation ⁠to have ​accelerated at a rate of 3% in May from 2.8% in ​April, as higher fuel prices were offset roughly by lower food prices, meaning service sector inflation was likely to have been the biggest driver ​of the increase.

DOLLAR STEADIES, SET FOR WEEKLY LOSS ON US-IRAN DEAL TALKS

The dollar steadied ​on Friday but remained on track for a weekly loss, as markets monitored negotiations over ‌a deal that could end the Middle East conflict. Traders were also digesting unprecedented demand for shares in SpaceX (SPCX.O), opens new tab, which raised $75 billion in an initial public offering and jumped about 20% in its Nasdaq debut. The euro was little changed at $1.15725, hovering near a one-week ​high and set for a weekly gain after the European Central Bank delivered its first interest rate ​hike in three years on Thursday. Leaked terms of a proposed memorandum to end the ⁠war in the Gulf, outlined by Western, Pakistani and Iranian sources on Friday, appeared to favor Iran, drawing ​criticism from U.S. President Donald Trump who called the reports inaccurate. Trump’s announcement on Thursday regarding a deal had ​prompted Wall Street shares to rally, oil prices to slip and the U.S. dollar to fall. Markets are pausing as they assess the prospects for peace and the impact of the SpaceX IPO, with investors watching whether funds will shift from equities or cash, said ​John Velis, FX and macro strategist at BNY. “The hoped-for good news on the ceasefire in the Middle East had a ​big reaction overnight and I think we came in this morning and we have the SpaceX IPO and a bunch ‌of central ⁠bank meetings next week,” Velis said. The U.S. dollar was up 0.18% against Japan’s currency at 160.225 yen, holding near a key level that often triggers concern about intervention from Tokyo. The pound was steady at $1.34145. Data showing the UK economy contracted in April had little impact, with markets focused on Iran talks. The U.S. dollar index , which measures the greenback ​against a basket of ​six currencies, was flat at ⁠99.75 after hitting a one-week low on Thursday. Investors have tended to buy the safe-haven dollar when tensions in the Iran war flare, and sell it in favor ​of riskier assets such as stocks when peace talks appear to make progress. Data on ⁠Thursday showed U.S. producer prices increased more than expected in May, ahead of Kevin Warsh’s first rate-setting meeting as chair of the Federal Reserve next week. Traders expect the Fed to keep rates steady at 3.5% to 3.75%, but see ⁠a greater ​than 50% chance of a hike by year-end. Pricing edged slightly ​lower on Thursday after Trump’s comments on a potential deal. Against the Swiss franc , the dollar strengthened 0.21% to 0.79680. In cryptocurrencies, bitcoin gained ​0.40% to $63,595.26. Ethereum declined 0.29% to $1,665.87.

STERLING HOLDS FIRM AGAINST EURO AHEAD OF ECB MEETING

The pound held firm against the euro on Thursday ahead of a European Central Bank meeting that should be ​the day’s main driver for the currency pair with ‌little in terms of scheduled news due from Britain. The euro was last at 86.3 pence, steady on the day, but near the bottom of ​its trading range for the year so far. The pound ​has been supported against its nearest neighbour in recent ⁠months by broad risk sentiment as well as traders shifting ​their expectations for Bank of England policy moves from rate cuts ​this year to hikes due to the conflict in the Middle East. ECB pricing has shifted from an expected no change this year to rate hikes, ​and Thursday’s meeting will help traders calibrate their bets on ​how many hikes to expect. The ECB announces its rate decision at 1215 GMT. ‌A ⁠rate hike is all but certain, but the question for traders is whether President Christine Lagarde offers any indications of how the ECB sees its policy stance evolving later in the ​year. A raft of ​British economic data ⁠due next week and a Bank of England policy meeting will give traders in euro/sterling the ​other half of the picture. Until then sterling is ​largely ⁠reacting to news elsewhere. It was also steady against the dollar at $1.3357. “With the BoE not meeting until June 18th, sterling should therefore ⁠trade ​off external forces for another session, with ​the ECB decision, US PPI, and Middle East headlines the likely drivers,” said ​analysts at Monex Europe.

DOLLAR FALLS AFTER TRUMP HALTS US STRIKES ON IRAN

The dollar dropped sharply against major peers on Thursday after President Donald Trump called off plans for renewed U.S. military ​strikes on Iran at the last minute, saying negotiations with Tehran were heading towards a possible deal. The dollar tends to strengthen during ‌periods of heightened geopolitical uncertainty, as investors seek safe-haven U.S. Treasury bonds, while it typically weakens when expectations of peace rise and money flows into riskier investments. Trump said negotiations with Tehran had advanced to the highest levels of Iran’s leadership and a deal had been approved by a broad coalition of regional powers. Iran’s semi-official Fars news agency reported that Tehran is likely to approve the agreement, although it ​has yet to give a formal response. The dollar weakened 0.68% to 0.7948 against the Swiss franc , relinquishing its early gains and on track to snap four ​straight sessions of rises. Earlier in the day, Trump had said that the U.S. would hit Iran “very hard tonight” and that he wanted at some ⁠point to take Iran’s oil infrastructure hub , after a second day of strikes by both sides in the Gulf appeared to threaten a return to all-out war. “I ​think we’re getting accustomed to this pattern of escalation so that there can be a de-escalation, which is reflected in the foreign exchange market,” said Juan Perez, director of ​trading at Monex USA. “Anytime there’s a likelihood of continuation of prolonged aggression and violence and war, that’s going to be very dollar positive. At the same time, when we have this idea floating around that we could have a sudden stop of aggression in a peace agreement, it makes sense for equities to rise up. Appetite for riskier assets is naturally going to ​kill the dollar.” The euro rose 0.42% to $1.15820, reversing losses in tepid trading earlier in the session after the European Central Bank raised interest rates for the first time ​in nearly three years, aiming to curb energy-induced inflation caused by the Iran war. The dollar index , which measures the greenback against a basket of currencies including the yen and the ‌euro, fell ⁠0.41% to 99.64, dropping to a near one-week low. “Yet again during another U.S. session, President Trump has said something that called off the bombing that he threatened Iran with and he says something that ‘peace is at hand’, and the market does what it does on these kinds of things: they take on more risk,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “That means buying stocks, buying equities, buying risk assets. But one of the things it also means is selling the dollar.” All ​three indexes on Wall Street added to ​gains and finished higher on the ⁠day following Trump’s comments, with the Nasdaq jumping 2.5%. Meanwhile, U.S. Treasury yields fell across the board. The yield on benchmark U.S. 10-year notes fell 8.7 basis points to 4.453%. Gold rose as the U.S. dollar fell. Spot gold rose 3.35% to $4,209.81 an ​ounce. The Federal Reserve is expected to hold rates steady next week at Kevin Warsh’s first meeting as Fed ​chair, with a strong ⁠majority of economists in a Reuters poll predicting that the U.S. central bank would keep rates unchanged for the rest of 2026. Traders, however, have fully priced in a 25-basis-point hike by December, a sharp turn from expectations of two rate cuts this year before the Iran war erupted at the end of February. The Bank of Japan also meets next ⁠week and is ​expected to hike rates, although Governor Kazuo Ueda has been hospitalized for medical treatment and will miss ​the June 15 to 16 policy meeting. The Japanese yen rose 0.49% against the greenback to 159.73 per dollar, still hovering near levels that could trigger official intervention from Tokyo. Sterling strengthened 0.37% against the dollar ​to $1.3415, reversing earlier losses. The Australian dollar strengthened 0.66% versus the greenback to $0.7048.

STERLING MUSCLED TOWARD TWO-MONTH LOWS BY ROBUST DOLLAR

The pound neared its lowest level in ​nearly two months on Monday, largely because of the strength of the dollar, which benefitted from mounting expectations ‌for U.S. rates to rise this year and from a degree of safe-haven demand, as violence spread across the Middle East. Oil prices jumped as much as 5% after Israel said it hit an Iranian petrochemical plant, along with strikes elsewhere on military targets, despite U.S. President Donald Trump warning Israeli Prime Minister ​Benjamin Netanyahu to refrain from additional attacks. This kept capital flowing into the dollar, which was already around its highest ​point in two months against a basket of major currencies after a better-than-expected jobs report on Friday. Sterling ⁠was steady at $1.334, just above the May 18 trough at $1.3304, the lowest point since April 8. Against the euro , the pound has ​fared a little better. So far this month, the euro has dipped 0.2% against sterling to around 0.864 pounds on Monday, but ​has remained in a fairly tight trading range over the past few weeks. The pound is now nearly 2% below where it was before the U.S.-Israeli war on Iran kicked off in late February. Throughout April, it gradually clawed back those losses, only to release them gradually over the four weeks that ​followed, as investors grew more unnerved about the possible impact on the global economy of higher oil prices and disrupted supply chains, ​which pushed them to favour the dollar. The other game changer for the pound has been the shift in rate expectations. With Britain more exposed to ‌imported energy ⁠inflation than the U.S., traders had priced in the possibility of the Bank of England raising interest rates a couple of times this year before they factored in the chances of the Federal Reserve switching to hikes from cuts. This hypothetical advantage for the pound collapsed once the prospect of a U.S. rate rise came into play and traders focussed on the possible pain for the British ​economy from higher rates and higher ​inflation. As things stand, money markets ⁠show traders believe British rates could end the year at around 4.26%, compared with 3.75% now, while U.S. rates could wind up at 3.92% from a range of 3.5% to 3.75%. A BoE survey ​on Friday showed British businesses expect to increase prices less quickly in the year ahead than they ​did in April ⁠as some of the initial energy price shock caused by the Iran war fades. This helped cement the view that the BoE might not raise rates until at least September. “In theory, EUR/GBP should be trading higher if the BoE is dragging its feet on tightening at a ⁠time when ​the ECB is about to hike and the data is prompting a rethink on ​the Fed’s position,” ING strategist Chris Turner said in a note. “Equally, sterling is generally seen as a pro-risk currency with a large financial sector, meaning that it ​generally underperforms in a risk-off environment.”