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[MARKET ANALYSIS] DXY slips on a "de-escalation" trade, ADP Employment ahead

The DXY's slip stems from eased geopolitical tensions regarding Iran, as President Trump indicated a potential resolution to the conflict.

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[MARKET ANALYSIS] DXY slips on a "de-escalation" trade, ADP Employment ahead

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UK PM Starmer reaffirmed that the war in the Middle East is not our war and will not be dragged into the conflict. Exploring every diplomatic avenue to reopen Hormuz

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  • DXY is on the backfoot this morning with markets pricing in a “de-escalation” trade, after US President Trump said to NBC News regarding the Iran war that "it is coming to an end", with a White House official suggesting Trump is confident an agreement will be reached soon. Interestingly, from the Iranian side, President Pezeshkian noted that Iran seeks to end the war with guarantees against further attacks. DXY currently holds at the lower end of a 99.41-99.88 range. It is worth highlighting that the index saw some strength after the Iranian Deputy Speaker of Parliament said that the "Strait of Hormuz will never be opened, there has been no negotiation and there will be no negotiation”.
  • Outside of geopolitics, recent data had little impact on FX, while participants look ahead to more data releases stateside, including ADP Employment Change, Retail Sales, and ISM Manufacturing PMI.
  • G10s are entirely stronger against the USD, albeit to varying degrees. The CHF outperforms, benefiting from lower energy prices – the likes of GBP and EUR also benefit. For the GBP specifically, the UK government confirmed new measures to ease the cost of living pressure are to come into force today, including an increase in the national living wage to GBP 12.71 and with energy bills to be cut by an average GBP 117 a year for millions across the UK, which will be locked in until end of June.
  • JPY also gains vs USD, albeit to a lesser degree vs peers. The seemingly easing Iran tensions has benefited the JPY, which builds on the strength seen in recent sessions, facilitated by jawboning and a hawkish-leaning BoJ SOO earlier this week. As for today, Japan’s Tankan survey was mostly stronger-than-expected, which supports the case for an April BoJ rate hike. USD/JPY currently trades within a narrow 158.27-159.01 range.
Context

This "de-escalation" has bolstered G10 currencies against the USD, with several economies also benefitting from favorable domestic measures or economic data, setting the stage for a volatile response as markets anticipate upcoming US labor data.

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