European FX Markets React to US-Iran Deal Hopes

The European session began with markets trading in a subdued manner, as uncertainty surrounding the Strait of Hormuz and the US-Iran standoff persisted. Major equity indices remained flat, bond yields showed little movement, and currency markets lacked clear direction. However, the mood shifted in the latter part of the session after US Treasury Secretary Scott Bessent indicated that a deal with Iran could be reached as soon as tomorrow, aimed at reopening the Strait of Hormuz. This news sparked optimism among traders, leading to a surge in the EUR/USD above 1.15 and a weakening of the US dollar.

Bessent's comments suggested that shipping activity through the strategic waterway was improving, and energy prices were expected to stabilize. Reports indicated that mediators, including Qatar, were working on draft agreements to restore maritime traffic and facilitate renewed negotiations between Washington and Tehran. As a result, US equity futures rose, oil prices began to slide, and the overall risk sentiment improved.

Despite this positive development, caution remains as Iranian officials continue to send mixed signals regarding direct talks with the US, and past attempts at reaching a lasting agreement have faced challenges. Nonetheless, the market's sensitivity to diplomatic progress remains high, with hopes for an imminent US-Iran deal driving a rally in risk assets and a notable selloff in crude oil.