22nd June - Strait Reopens & Starmer Resigns
- Jun 22
- 4 min read
The weekend saw a rocky start to negotiations between the US and Iran in Switzerland. At one point, Iran publicly walked out of the talks as reports continued to emerge of Israeli strikes in Lebanon, after a ceasefire was initially announced between the two on Friday. Iran also claimed on Saturday to have closed the Strait of Hormuz again after the strikes. This was disputed by the US, however, and tracking data seemed to show ships still moving through the Strait. Israel maintains that the war in Lebanon is separate from the conflict in Iran, but has also said it will respect a new ceasefire as long as Hezbollah does not violate it from their side.
The markets have been taking the developments as negotiation tactics rather than actual developments. Iran reacting to Donald Trump's tweets was seen as a way to improve their position rather than any real offense being taken. It is likely we will see further rumors and news events over the coming days and weeks. I would suspect, unless we see something concrete change (the Strait actually closed again, for example), that markets will continue to see this as negotiating tactics and reaction will be limited.
The other major news in international markets was that UK PM Keir Starmer has announced he will resign after a loss of support within the Labour Party. This will initiate a leadership race to decide who will be the new Labour Party leader and, by extension, the new UK Prime Minister. It is widely expected that this will be newly elected MP Andy Burnham. The uncertainty now is how long the process will take and whether Burnham's policies will be markedly different from Starmer's.
Forex
The USD continues to show strength on the back of the FOMC surprise last week. There was some temporary weakness on Friday due to news of a ceasefire being agreed between Israel and Lebanon, but this has been more than overcome at the opening of markets after the weekend. We can expect to see further strength this week as markets fully price in the expected interest rate hikes, though Thursday's Core PCE news event could change market sentiment. If we see signs that inflation is less sticky than expected now that oil has fallen from its highs, we could see a change in expectations and the market feel the FOMC may no longer need to be as hawkish as it was.
The USD/JPY continues to be a key pair to watch, as it is continuing its march higher. It is now once again at the levels where the BoJ intervened in 2024. Will we see another intervention, or will the BoJ allow markets to continue to move higher? We have been talking about it for weeks; we may now find out in hours.
Outside of the USD, the key market to watch is the GBP following the news of Starmer's resignation. Markets have actually reacted positively since the news was released, likely thanks to the removal of uncertainty as to whether Starmer would continue to fight on. The GBP is still in uncertain territory; the UK saw better-than-expected inflation figures last week that would normally put pressure on the GBP, but we then saw a more hawkish vote spread from the BoE that has given the currency some support. It will be an interesting currency to watch over the weekend, as markets continue to digest the news and react to any announcements on the timeline of the leadership change process.
The CAD continued to struggle due to lower oil prices, with both Brent Crude and US Oil falling today on positive news from the Middle East. The EUR remains steady; it is losing ground to the USD but is being held up elsewhere by hawkish ECB support. The CHF is continuing to struggle after any remaining safe-haven demand is removed, while the AUD and NZD continue to follow precious metal movements.
Indices
The proof that markets were taking some of the uncertainty around the Iran negotiations with a pinch of salt can be found in the indices markets, which fell a little on Friday but have not shown any significant moves over the weekend. The main market drivers for indices now seem to be back to fundamentals, specifically the FOMC and its future rate decisions. Futures are now pricing a 41 basis point rise by the end of the year, while 2-year Treasury yields are now at their highest since February 2025. The main news event for the week will be the Core PCE event on Thursday; all eyes will be on this and how it is expected to affect the FOMC's future decisions.
Precious Metals
Precious metals have actually seen a positive morning today, as oil continues to drop in price and negotiations in the Middle East continue. The metals market is seeing the potential for the interest rate situation to not be as bad as it seemed after the FOMC event last week. We are likely to see some continued pressure at the start of the week due to expected dollar strength continuation, but as with indices, the key event this week will be the PCE release on Thursday. A lower-than-expected figure will relieve interest rate hike pressure and be a positive for metals; a higher-than-expected or even figure will not help the expectations, and metals can be expected to fall further.
This Weeks Market Drivers
Middle East negotiations - If we continue to see slow progress and an absence of significant news, then markets will look past this and focus on events closer to home. Anything unexpected, however, and we could revert back to Iran being the biggest market driver there is.
Starmer's Resignation - The key point here is whether there will be any challenge to Andy Burnham or whether he will have a clean run to the PM position. The timeline will affect GBP; uncertainty will be bad for the currency, and clarity will be good.
US Core PCE, Thursday - This will be the largest data release of the week and will have a significant effect on interest rate expectations going forward.
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