Oil prices are down dramatically, shares are gaining, and the dollar is retreating on signs that the latest round of hostilities in the Middle East is drawing to a close. A truce between Israel and Iran, announced by US President Donald Trump late last night, was temporarily interrupted by accusations of missile launches from both sides, but now appears to be holding. Crude benchmarks plunged earlier in yesterday’s session when Tehran launched a well-telegraphed missile attack on US assets in Qatar, avoiding an escalation that might have led to a disruption in global energy supplies.

Treasury yields tumbled yesterday when another Federal Reserve official turned dovish, helping lift market-implied odds on a rate cut by September. “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting,” said vice chair for bank supervision Michelle Bowman in a speech, noting that she had become more concerned about the risk of a weakening in employment than higher inflation. Governor Christopher Waller on Friday told CNBC that he could vote for a rate cut next month.

Jerome Powell will counsel a more patient approach when he testifies in front of Congress this morning. With the exception of Bowman and Waller—both Trump appointees—most members of the Federal Open Market Committee have expressed sentiments consistent with staying on the sidelines until the autumn. “We haven’t been through a situation like this, and I think we have to be humble about our ability to forecast it,” Powell said during last week’s post-decision press conference, “We feel like we’re going to learn a great deal more over the summer on tariffs,” but “For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance”. Prepared remarks, just released, suggest that his message won’t change today, but traders will nonetheless be watching for any easing hints during the question and answer period, and the dollar could be vulnerable to a modest dip if Powell notes that a cut could “soon” become appropriate.

The Fed’s reluctance to ease more aggressively marks a contrast with its counterparts elsewhere. Even as some of the major central banks have approached estimates of “neutral”, most have remained on an easing trajectory this year, with more cutting rates than hiking them. This is lowering borrowing costs worldwide and helping cushion the global economy against tariff-related uncertainties.

We think this juxtaposition could eventually slow the greenback’s decline. American Treasury yields remain far above most of their peers elsewhere, meaning that on an index-weighted basis, rate differentials are tilted strongly in the dollar’s favour. If trade and geopolitical noise levels die down in the coming months, the stage could be set for a modest degree of outperformance in the dollar.

In Canada, underlying inflation pressures continued to subside last month, clearing the way for an autumn rate cut. Data released by Statistics Canada this morning showed core price growth, computed as the average of the two measures now preferred by the Bank of Canada (trim and median), increased 3 percent over the same period last year, down from 3.1 percent in the prior month. The headline consumer price index climbed 1.7 percent on a year-over-year basis, matching consensus estimates. On a month-over-month basis, the all-items price index rose 0.6 percent.

Although a cut in October seems most probable, July remains on the table. Although recent data releases have pointed to a surprising degree of resilience in the Canadian economy, a deterioration isn’t difficult to see, inflation is clearly continuing to moderate, and new evidence in the weeks ahead could clinch an earlier move. Several tariff deadlines are set to pass early next month, and policymakers will see another inflation update, a retail sales report, two jobs numbers, and a set of quarterly consumer and business surveys before they meet again. Swaps traders are now putting the odds on a July rate cut at around 35 percent, and we think that looks fairly reasonable. The Canadian dollar could continue to lag its developed-market peers, and is vulnerable to a retreat in the event that the greenback stages a recovery.