Relief rally in full force as US and Iran reach deal

Trump says deal with Iran is ‘complete’

The United States and Iran reached a framework agreement on Sunday aimed at ending their more than three-month-old conflict, following days of optimism that the two sides were closing in on a deal. Under the agreement, which President Trump has said “is now complete”, both the US and Iran will end their blockade of the Strait of Hormuz within 30 days and negotiators will work towards a nuclear deal within a 60-day ceasefire timeframe.

Iran will be allowed to resume oil exports during the ceasefire period but there’s some uncertainty about whether the sanctions relief would begin before or after any final agreement. There are also doubts about other details, with Iran publishing different versions of the deal, suggesting there are still several issues that need to be resolved before the signing ceremony that’s scheduled for Friday.

Oil slides but hesitancy persists

Significantly, the deal includes a ceasefire for Lebanon as well. Though, this may also be the cause for sinking a final agreement, amid Trump reportedly lashing out at Israel’s Netanyahu for continuing to strike at Hezbollah targets yesterday while negotiators were trying to secure peace.

Moreover, the most difficult part of the negotiations – whether Iran should be allowed to have its own nuclear programme – is still to come. Trump has already threatened to restart US attacks on Iran if Tehran does not agree to never possess any nuclear weapons.

The many uncertainties that could yet derail the peace process is preventing a massive collapse in oil prices, with WTI and Brent crude futures finding support in the $80 a barrel region. WTI was last quoted 5% lower at $80.80, while Brent is trading around $83.55.

RBA kicks off central bank bonanza

Nevertheless, oil’s broad decline since the end of April has been substantial and the latest three-day slide, in particular, will likely be noted by policymakers at the RBA, Bank of Japan, Fed, Bank of England and SNB, who all meet this week.

Australia’s RBA is almost certain to keep rates on hold tomorrow and may cast doubt about the need for further hikes. Yet, the Australian dollar is one of today’s biggest gainers against the US dollar amid the relief rally over the US-Iran deal.

The Bank of Japan, on the other hand, will have less reason to be cautious due to growth concerns if the latest peace efforts pave the way for the full reopening of Hormuz. However, the anticipated rate hike on Tuesday may not be enough to support the yen if there’s no strong commitment to further tightening.

The yen is trading slightly firmer today, around 160.10 per dollar, although it’s off its earlier session highs.

Dollar eyes Warsh’s debut

But the week’s real highlight will be Wednesday’s FOMC meeting, when new Fed Chair Kevin Warsh will take the podium for the very first time. Investors have yet to hear from Warsh since his Senate confirmation hearing and whilst it’s unlikely that he will signal any rate hikes, it will be difficult for him to keep the rate-cut option on the table given the very strong hawkish tilt among his colleagues.

That’s not to say that Warsh will not succeed in asserting his authority and maintain the Fed’s easing bias. Hence, the risks to the dollar are symmetrical, especially now that geopolitical risks are slowly coming out of the equation.

Gold and bitcoin cheer US-Iran deal 

A dovish surprise would be good news for gold, which is extending a two-day rebound on Monday to climb towards $4,335. Should the overall tone of this week’s central bank decisions disappoint the hawkish expectations, gold’s recovery could speed up towards the end of the week, with $4,500 being the first big target for the bulls.

Other precious metals are also soaring today, as are cryptos. All stand to gain from central banks easing up on the inflation threat, now that energy flows from the Gulf are close to restarting.

Bitcoin is currently up more than 2.5%, jumping above $65,600.

Stocks surge on Middle East and AI optimism

Equities are also benefiting from the relief rally, although European stocks are displaying some caution after ECB policymakers, including President Lagarde, kept their guards up about second-round inflation effects in remarks earlier today.

For the Fed, however, a 25-bps rate hike is not seen before March 2027, and this is bolstering the positive mood amid the ongoing AI frenzy.

Nasdaq futures are up more than 2%, buoyed by the 5% gains in Tokyo and Seoul, as the AI optimism shows no sign of receding.