[MARKET ANALYSIS] DXY knocked on optimistic Pakistan sources on US-Iran; EUR and GBP outperform as TTF eases
- DXY was bid through APAC trade, marking a peak of 99.11 in Europe, thereafter entirely erasing gains to a 98.95 trough following an optimistic readout of the Pakistan-Iran meeting via Saudi press sources (see commodities for details). Focus remains on the geopolitical situation and its follow through to yields, where the US 30yr currently sits at the middle of Wednesday's Treasury announcement fall, around 5.22%. Brent contracts trade USD 3/bbl off session highs, the Brent November contract looking below to 88.50/bbl. The session ahead is light with ADP’s weekly Employment Change data and a 2yr auction scheduled.
- EUR did not take too much of a lead from the aforementioned action in energy markets. TTF around EUR 67/MWh remains at an uncomfortable level for the ECB, which, alongside a strong Ifo, paints a hawkish mood in today’s session. EUR/USD is just off recent 1.17 highs, within 1.1651-1.1671. GBP action is similarly quiet with focus on the upcoming week’s risk events; domestic updates include PM Burnham failing to rule out tax increases in the Budget, remarks which have not given much of a lead to UK assets. GBP outperforms vs. USD just below 1.1650 and EUR, at 0.8550.
- SEK is weaker against the EUR and flat against the Buck with no reaction to Riksbank minutes, which showed members were optimistic about the Swedish economy, though revealed a split on the future rate path, with some members maintaining a wait-and-see stance.
Sessions where a single-source geopolitical readout reverses a DXY bid tend to follow a familiar sequence: an initial dollar bid on risk-off or safe-haven flows, an unwind on de-escalation headlines via unverified regional press, and follow-through that hinges on whether the energy complex confirms. Here the transmission runs from the TTF and Brent pullback through the crude-sensitive currencies and into the dollar's rate spread, with the long end of the Treasury curve acting as the confirming leg rather than the driver. The EUR's failure to take much from softer energy while TTF remains at levels uncomfortable for the ECB fits the established pattern in which the terms-of-trade relief helps the single currency only once gas falls below the threshold that changes the inflation debate, and a strong Ifo keeps the hawkish framing intact. GBP outperformance alongside a government that declines to rule out tax rises has historically been a soft signal, since fiscal headlines of that kind tend to matter for gilts before they matter for sterling. The Riksbank minutes, split on the path but constructive on growth, are the standard recipe for SEK drift rather than direction. Worth noting is the thin calendar ahead: with only weekly labour data and a front-end auction scheduled, price action of this kind is prone to retracement on any contradictory headline from the same channel.