The US dollar weakened against major currencies after a cease-fire between Israel and Iran was announced. It dropped 0.78% against the yen and 0.66% against the pound. The largest declines occurred against the Australian and New Zealand dollars, which fell by 0.74% and 0.94%, respectively. The Federal Reserve is divided; Chair Jerome Powell is holding rates steady but warns of inflation risks due to tariffs. Powell will testify about the Semiannual Monetary Policy Report. Meanwhile, Atlanta Fed President Bostic says there is no need for immediate rate cuts but expects a 25 basis point cut later this year. He also predicts economic growth will slow to 1.1%, with inflation rising to 2.9%. Business sentiment has slightly improved, but future price increases are still expected. US stocks reacted favorably, with the Dow, S&P, and NASDAQ rising on cease-fire news. Bond yields increased slightly following previous declines. However, the cease-fire may face challenges, as recent actions between Israel and Iran indicate ongoing tensions. Crude oil prices fell by $2.43 to $66.08, and gold dropped by $47. Bitcoin remained stable at around $105,298. The global markets quickly adjusted to the cease-fire between Israel and Iran. The US dollar fell against most major currencies, showing a shift towards risk-sensitive assets as conflict fears eased. The increases in the Australian and New Zealand dollars reflect a stronger risk appetite. Similarly, the pound’s rise shows related trends but to a lesser extent. Bonds saw slight yield increases as investors reassess geopolitical risks and central bank actions. Powell’s message suggests patience about interest rates, although high inflation—possibly worsened by tariffs—limits the possibility of cuts for now. Bostic’s remarks indicate that while growth may slow down, it isn’t expected to collapse, and inflation concerns persist. This situation gives the Federal Reserve time to assess the economy, as there’s no sign of an urgent need to change direction. Equities climbed, reflecting investor relief. Generally, lower geopolitical tension encourages more investment in stocks. Future movements will depend on the stability of the cease-fire, especially after recent incidents that could challenge it. Overall, market confidence seems delicate, and any sudden military action might reverse recent gains. Oil markets responded quickly, with crude prices dropping sharply due to reduced concerns about supply disruptions in the Middle East. This is significant to watch. Lower oil prices can ease transport and production costs, directly impacting inflation forecasts. This supports Bostic’s view of a minor rate cut later this year, granted price trends remain calm. Gold, often a safe investment, fell as investors stepped back from protective positions, while Bitcoin remained surprisingly stable. This steadiness indicates that digital assets are simply mirroring the reduced fear in financial markets rather than leading sentiment. Looking ahead, we need to closely monitor policy comments and any potential slip-ups in the cease-fire. Powell’s upcoming testimony will clarify the central bank’s view on price data and geopolitical risks. If he remains cautious even with easing tensions, it would signal that core inflation is still a major concern. Key indicators such as producer margins, inventory levels, and shipping rates will show early signs of pricing pressure, particularly if peace talks falter or commodity flows become erratic. The bond market will also provide insights. If yields keep rising without solid economic data to back it up, the movement may result from changing expectations about central bank policies rather than genuine growth improvement. We must keep this distinction in mind. Liquidity, especially in overnight and short-term interest rate markets, could tighten if forward guidance becomes more hawkish. Any position based on dovish expectations will need to be reevaluated. Signs are emerging of recalibration in the swap and options markets tied to Fed policy, and imbalances in these areas might lead to rate volatility. Caution is needed around options expirations and sudden price changes, particularly if policymakers continue to send mixed messages. In summary, while markets are feeling more relaxed, this calm could be temporary. Positioning should take this fluid situation into account.

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