US FX WRAP: Dollar dumps on Trump announcing an Iran deal to be signed soon

The dollar was broadly hit on Trump reversing his decision to attack Iran tonight, citing that discussions with Iran have been brought to the highest level of Iranian leadership and approved. Trump floated an agreement that would be signed and announced soon. The move was broad-based, as a surge in risk appetite left EMs rallying. As of now, Iranian media have said a final agreement has not been approved by Iran, which syncs up with Axios' Ravid reporting that the Supreme Leader still needs to give final approval. In response, oil prices tumbled, leaving bonds bid as Fed rate hike bets got unwound, denting the USD bull case. In the US morning, US PPI sparked a quiet reaction in trade, though it printed notably hotter on the headline readings than CPI on Wednesday. Core came in softer-than-expected; however, the acceleration in the supercore measure means current levels of underlying inflation remain a concern. Separately, initial claims ticked higher to 229K from 225K, but like continued claims, remain in healthy ranges. Now, we await a response from the Iranian Supreme Leader on Trump's comments. Meanwhile, SpaceX's IPO on Friday marks a historic day; demand thus far appears to be strong, particularly amongst retail investors. DXY trades around 99.586, lows from earlier 100.314 highs.

G10 FX was mostly in the green, except CAD and NOK, both weighed down by the slump in oil prices. Antipodes saw the most gains, whilst the EUR posted lesser gains in the aftermath of the ECB announcement. 

The ECB decision was broadly as expected, with a 25bps hike and the expected non-committal guidance and usual language. Baseline inflation forecasts were revised higher while growth was cut, though the cut to the growth view was not as marked as some had expected. Overall, the statement endorses, but does not cement, market pricing for another 2026 hike. EUR/USD hit lows of 1.1503 on Trump's escalation before reversing on his U-turn to highs of 1.1589. Click here for the full ECB review.