EUR/USD edges higher to around 1.1610 in Monday’s early European session.
The US and Iran announced a framework deal for peace.
ECB’s Nagel said the central bank is ready to hike again in July if necessary.
The EUR/USD pair gains traction to near 1.1610 during the early European trading hours on Monday. The reports that the US and Iran have reached a deal to reopen the Strait of Hormuz improved risk sentiment, supporting the Euro (EUR) against the US Dollar (USD). The US Federal Reserve (Fed) interest rate decision will be in the spotlight later on Wednesday.
Washington and Tehran have announced a framework deal for peace, which will be signed in Switzerland on Friday. US President Donald Trump said the US is lifting its naval blockade on Iranian ports and that the Strait of Hormuz will reopen after the agreement is signed.
The Fed is widely expected to keep its benchmark interest rate unchanged at a target range of 3.50% to 3.75% at its upcoming policy meeting on Wednesday. Traders will closely monitor the press conference and take more cues about how new Fed chair Kevin Warsh will lead the US central bank into its next era. Any hawkish remarks from Fed officials could lift the Greenback and act as a headwind for the major pair.
Last week, the European Central Bank (ECB) hiked its key interest rates, saying “the war in the Middle East is generating inflation pressures.” This marks the first rate increase since September 2023, after seven consecutive meetings where interest rates were kept on hold.
ECB Governing Council member Joachim Nagel said on Friday that the central bank is prepared to raise interest rates for a second straight meeting in July, if the shock from the war in the Middle East requires it.
GBP/USD jumps to near 1.3460 as the market sentiment turns favorable for riskier assets.
The finalization of an MoU between the US and Iran has improved the market mood.
The Fed and BoE are scheduled to announce their monetary policies on Wednesday and Thursday, respectively.
The GBP/USD pair trades 0.35% higher to near 1.3460 during the late Asian trading session on Monday. The Cable extends its week-long advance as market sentiment improves further, following the announcement that the United States (US) and Iran have reached a deal.
At press time, S&P 500 futures are up over 1% and Asian stock markets are exhibiting a broad rally, reflecting a strong risk appetite of investors. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.4% lower at near 99.40.
Pakistan Prime Minister (PM) Shehbaz Sharif has stated in a post on X, formerly known as Twitter, that the finalized memorandum of understanding (MoU) between the US and Iran will be signed on June 19 in Switzerland.
Meanwhile, investors brace for a volatile week, especially for the British Pound (GBP), as an array of United Kingdom (UK) data, including the labor market report for three months ending in April and the Consumer Price Index (CPI) data for May, along with the Bank of England’s (BoE) monetary policy announcement, will be key events to watch out.
In the US, investors will focus on the Federal Reserve’s (Fed) monetary policy, which will be announced on Wednesday.
GBP/USD technical analysis
GBP/USD trades sharply higher at around 1.3460 as of writing. The near-term bias has turned mildly bullish as it returns above the 20-period exponential moving average (EMA), which is at 1.3425.
The Relative Strength Index (RSI) at about 53 hovers just above the midline, hinting at steady, rather than aggressive, upside momentum while the pair consolidates within this supported backdrop.
On the topside, the primary hurdle is the May 26 high at around 1.3500, followed by the descending resistance trend line, with its break price near 1.3580. On the downside, initial demand would be seen around the 20-EMA at 1.3425, while the upward trend-line support around 1.3327 would remain a key support zone.
The offshore yuan strengthened to around 6.75 per dollar on Monday, extending gains from the previous week and reaching its highest level since January 2023, as a reported US-Iran peace breakthrough triggered broad-based dollar weakness and boosted regional currencies. The tentative agreement reportedly includes the reopening of the Strait of Hormuz, a cessation of hostilities, and a framework for negotiations over Iran’s nuclear program. Iranian Deputy Foreign Minister Kazem Gharibabadi also confirmed the agreement, with officials from both countries expected to meet in Switzerland to formally sign the deal. However, key details remain unresolved, while no official text has yet been released. On the domestic front, investors continued to assess the strength of China’s economy following recent signs of uneven growth, particularly industrial production, retail sales, and unemployment figures.
The USDNOK exchange rate ended yesterday’s session above the 100-day exponential moving average (EMA100; purple).
Brent crude oil futures (OIL) are losing ground for the second consecutive session, slipping below 90 USD per barrel—their lowest level since April 20, 2026.
CPI inflation in Norway fell to 3.1% in May from 3.4% in April.
USDNOK is gaining momentum, increasingly solidifying a trend reversal on a pair whose volatility in recent months was primarily shaped by upward pressure on oil prices. Over the past two weeks, the price crossed three exponential moving averages (the 10-, 30-, and 100-day EMA; yellow, light purple, and dark purple, respectively) and successfully defended support where the EMA100 overlaps with the 50.0 Fibonacci retracement level of the latest downward wave. This technical bullish momentum is also well-supported by geopolitical and macroeconomic realities. Fluctuations in the Trump administration’s stance toward Iran did not trigger significant volatility (by recent months’ standards) in oil contracts, and the cancellation of an attack planned for yesterday contributed to a sharp drop in commodity prices.
This suggests that, for the market, the worst regarding the Strait of Hormuz is already behind us, thereby causing the risk premium for oil-producing countries’ currencies to fade out. Alongside the correlation between the Norwegian krone and oil, the latest inflation reading from Norway indicated a second consecutive drop in CPI, with economists forecasting a further decline in price pressure—particularly in the food sector, which is vital for households and their expectations. Meanwhile, in the US, hawkish expectations are mounting for the Fed (OIS curve imlies 73% chance for a hike bedore the end of 2026), benefiting the greenback. Therefore, the monetary policy trajectories of both economies consistently support a continuation of the upward move in USDNOK. A short-term risk remains the near-overbought condition of the pair. The RSI sits right below the 70-point threshold (currently at 66.4), which may discourage investors from pushing the exchange rate higher without a minor technical correction.
Methodology
The recommendation was prepared based on a technical analysis of the USDNOK chart and a fundamental analysis of the discussed economies (monetary policy in Norway and the US), as well as the exchange rate’s correlation with crude oil prices. The direction of the recommendation was determined using moving averages and market expectations regarding Fed policy. The Take Profit and Stop Loss levels were set using Fibonacci retracements and price action (TP1 and TP2 at the 78.6 and 100 Fibo levels of the last downward wave; SL at the 38.2 Fibo level).
pril 2026 as a result of the escalating conflict in the Middle East. According to the latest data from the Office for National Statistics (ONS), this marks the first monthly GDP decline since August 2025. Although this contraction aligns with forecasts from economists polled by Reuters, it represents a sharp trend reversal from March, which recorded a 0.3% growth. However, looking at the less volatile three-month perspective, real GDP grew by 0.7% in the period to April 2026, demonstrating that the British economy entered the current crisis on relatively stable foundations.
Chart 1: Real and nominal GDP in the United Kingdom (upper panel) and quarter-on-quarter change (lower panel). In Q1 2026 (January–March), the UK economy grew by 0.6%, offering a solid base by British standards before the effects of the Middle East war materialized. Source: XTB Research based on ONS/Bloomberg data.
How the Iran Conflict Stalled Growth in the United Kingdom
The main catalyst for April’s slowdown is the war between Iran and the US, which recently passed the 100-day mark. The effective blocking of the Strait of Hormuz—a crucial shipping route for oil and many other commodities—paralyzed global supply chains and triggered a sharp surge in energy and fuel prices. As a net energy importer, the UK is exceptionally vulnerable to international energy shocks. A sudden surge in prices at petrol stations forced motorists to drastically cut consumption in April, reversing the positive growth impulses seen at the beginning of the year. Furthermore, ONS surveys revealed widespread complaints from businesses regarding falling turnovers and rising production costs across the wholesale, manufacturing, and transport sectors.
Sector Breakdown: Slump in Services, Stagnation in New Construction
April’s economic slowdown was characterized by uneven performances across core industrial sectors:
Services Sector: Recorded a 0.2% decline, becoming the primary driver of the monthly GDP drop. The arts, entertainment, and recreation sector suffered the most, posting a drastic 9.1% fall. This was mainly due to the cancellation of multiple sporting events in the Middle East, which directly hit UK-based companies.
Construction: Ticked up marginally by 0.1%. However, this growth came solely from a 0.6% recovery in repair and maintenance. New construction projects fell by 0.3%, complicating the government’s political promises to accelerate housebuilding in the UK.
Industrial Production: Showed zero growth (0.0%). Although manufacturing grew by 0.4% (driven by a 4.2% surge in pharmaceutical production), these gains were completely offset by shrinking outputs in the utility sector.
Stagflation Risks and the Bank of England’s Dilemma
The sudden dip in GDP momentum has raised serious concerns about a dangerous descent towards stagflation—a situation where economic stagnation couples with stubborn inflation. The International Monetary Fund (IMF) has already downgraded its 2026 UK economic growth forecast from 1.3% to just 0.8%, warning that Britain could feel the impact of the war most acutely among major economies. Economic conditions could deteriorate further in the third quarter, when the domestic energy price cap is set to rise by 13%, allowing suppliers to pass higher oil and gas costs onto consumers. This leaves the Bank of England in a precarious position ahead of its upcoming interest rate decision. Policymakers must now balance combating war-driven inflation against the risk of triggering a deeper recession.
Following the ONS release, sterling initially lost 0.2% against the dollar as markets scaled back expectations for subsequent rate hikes. Over time, however, a global increase in risk appetite took over in response to easing tensions between the US and Iran, resulting in a weaker dollar. Moreover, the softer GDP does not eliminate the hawkish pressure on the Bank of England, which is widely expected to hold interest rates at 3.75%. Some members of the Monetary Policy Committee may vote for a hike, signaling the central bank’s readiness to combat the prolonged energy shock.
Chart 2: The Bank of England’s main interest rate and UK 2- and 10-year bond yields. Yields are already clearly above the 3.75% rate, signaling hawkish expectations from the debt market, which is organically tightening financial conditions. Source: XTB Research based on Bloomberg data.
Technical Analysis: GBPUSD (D1)
GBPUSD is currently trading slightly up (+0.05%), although the pair on the D1 interval remains in a local downtrend, consolidating around the 1.34158 level. The price is currently moving below key exponential moving averages: EMA 30 (1.34226) and EMA 100 (1.34372), which act as crucial resistance for any building momentum. Following a rebound from recent support near 1.3330, selling pressure has slowed down. The RSI (14) indicator at 49.5 signals complete market neutrality. The next direction depends on a sustained breakout above the moving averages or a return to test the recent lows.
Commerzbank’s Thu Lan Nguyen notes the European Central Bank sounded slightly hawkish, but investors already price in two further hikes, leaving the Euro softer after President Lagarde avoided clear guidance. Nguyen argues whether hikes come in July or later still matters, as an earlier move would signal urgency, yet markets may see rapid tightening as a policy mistake and price in future cuts, limiting Euro support.
ECB timing debate clouds Euro outlook
“Basically, things turned out just as my colleague Michael had predicted in the morning: in our view the ECB sounded slightly hawkish yesterday. But that was not enough to lure investors out of hiding who are already pricing in two further rate hikes by the end of the year anyway. Accordingly, the euro ultimately edged slightly lower, as President Lagarde avoided sending a clear signal in favour of further rate hikes.”
“This was probably not the main reason for the upward move in EUR/USD over the course of yesterday’s trading – the decisive factor here was US President Trump’s statement that he had called off another military strike against Iran because a deal was virtually in the bag. However, it is likely to have contributed to positive euro sentiment. After all, the discussion shows that a rate hike in July is at least on the table.”
“One might argue: whether the next two rate hikes expected by the market take place in July and September, or in September and December, hardly makes a big difference and is therefore irrelevant for the euro. But it is not quite that simple. A second rate hike as early as July would suggest a certain urgency behind the tightening and would therefore have a somewhat hawkish flavour.”
“If the market shares this view, it is likely to price in a rapid correction in rates downwards at the long end, which would dilute – if not completely negate – the positive effect of the rate hike for the euro. So: the debate about the timing of the next rate hike is by no means irrelevant. The situation is more complex than it appears at first glance
USD/CAD edges higher to around 1.3980 in Friday’s early Asian session.
The annual US PPI inflation rate was the highest since November 2022.
BoC left the interest rates unchanged at its June meeting on Wednesday.
The USD/CAD pair gains traction to near 1.3980 during the early European trading hours on Friday, bolstered by hot US inflation data. Traders will closely monitor the developments surrounding the US-Iran peace deal. The preliminary reading of the Michigan Consumer Sentiment Index for June is due later on Friday.
Data on Thursday showed US Producer Price Index (PPI) inflation rose more than expected in May, leading to the largest annual gain in three and a half years as the Middle East conflict drove up the cost of energy products.
The Fed is clearly missing its inflation target by a lot more than it is missing its employment objective,” said John Ryding, chief economic advisor at Brean Capital. “The PPI report should further embolden those on the FOMC who think a rate hike might be needed later in the year,” Ryding added.
US President Donald Trump said on Thursday that the US and Iran could sign a peace deal as soon as this weekend that would reopen the Strait of Hormuz to shipping. Iran countered that it had not reached a final decision on an agreement. However, uncertainty remains high amid ongoing tensions in the Middle East.
US forces intercepted and shot down two Iranian one-way attack drones near the Strait of Hormuz on Thursday after Iran attempted to target commercial vessels transiting the waterway, per Fox News. The Islamic Revolutionary Guard Corps (IRGC) said that the country is stronger than ever and ready to deliver a “decisive, immediate, painful and regret-inducing response” to any aggression.
On the Loonie front, the Bank of Canada (BoC) on Wednesday decided to hold its key interest rate unchanged as expected and said it was seeing limited evidence that higher energy prices were fueling broad-based inflation.
Nonetheless, BoC Governor Tiff Macklem reiterated that the bank would not hesitate to raise rates if need be to keep inflation in check. “The Governing Council is continuing to look through the war’s near-term impact on headline inflation but will not let higher energy prices become persistent inflation,” according to the BoC statement.
United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann observe that GBP/USD’s surge to 1.3434 has stretched short-term conditions, but further gains toward a retest of 1.3435 remain possible, with 1.3465 unlikely to break. Over 1–3 weeks, they expect range trading in a higher 1.3340–1.3465 band after shifting from a negative to neutral stance, with momentum not yet strong enough for a sustained advance.
Pound holds firm but capped near resistance
“24-HOUR VIEW: While we expected GBP to “edge lower” yesterday, we indicated that “any decline is likely part of a lower range of 1.3330/1.3395.” We added that GBP “is unlikely to break clearly below 1.3330.” GBP subsequently broke below 1.3330 (low of 1.3325), but it then lifted off and surged to a high of 1.3434. While the rapid rise has room to extend, overbought conditions suggest that any advance is likely limited to a retest of 1.3435. The next resistance at 1.3465 is unlikely to come under threat. Support is at 1.3385; a breach of 1.3365 would indicate that GBP is more likely to range-trade rather than retesting 1.3435.”
“1-3 WEEKS VIEW: We revised our view from negative to neutral yesterday (11 Jun, spot at 1.3365). We indicated that the earlier “downward momentum has faded, and for the time being, GBP is likely to trade in a range between 1.3300 and 1.3435.” GBP then dipped to 1.3325 and then soared, testing the upper boundary of our range with a high of 1.3434. Upward momentum has increased, but not sufficiently to indicate a sustained advance. For the time being, we continue to expect range-trading, though the range has shifted higher to 1.3340/1.3465.”
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