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Official White House Photo by Molly Riley

The British pound holds near recent highs against the euro and recovers against the dollar.

Currency markets continue to keep an eye on oil prices and developments in the Iran conflict, welcoming signs that the U.S. will soon disengage from the war.

President Donald Trump said overnight the U.S. could end the war with Iran "in the near future."

The comments confirm the President is unlikely to escalate the war further, which significantly lowers the risk of another damaging surge in energy prices that would risk sending the global economy into recession.

As escalation risks fade, so too does the dollar; it has steadily fallen against both the euro and pound sterling, with GBP/USD lifting to 1.3363 by Wednesday from Monday's low at 1.3225 and EUR/USD going to 1.1537 from 1.1414.

GBP/EUR is largely unchanged at 1.1580.

The risks are two-way for the pound in the event of further de-escalation: it will likely rise further against the dollar as that safe-haven and oil-driven bid fades from USD, but it will mean-revert and fall against the euro.

However, it's too soon to call the all-clear as Iran has not relented and vowed revenge for the assassination of its security chief, Ali Larijani.

Overnight, Iranian attacks continued with a fresh wave of missile and drone attacks, targeting the United Arab Emirates, Saudi Arabia and Kuwait.

The Strait of Hormuz remains largely closed to traffic, but some ships have been allowed through by Iran, confirming the country will choose which traffic to allow through. We could see more deals struck by Iran with countries deemed friendly, allowing seaborne cargo to pass through the Strait.

Although the U.S. might choose to disengage at some point, that doesn't mean Iran will, and there remains a threat of prolonged disruption to global energy supplies.

However, markets seem to have made peace with this, anticipating higher-for-longer energy prices.

The assumption is that this will push higher inflation but the price gains won't be enough to derail the global economy.

"While we do not see a particular oil price level associated with a recession, all previous recessions saw sharp oil price increases, at least a doubling. By our estimate, a move to USD 135/bbl for Brent oil price would be a level at which markets start to focus more on growth than inflation risks," says Madhur Jha, Global Economist at Standard Chartered.

If currency markets have found an equilibrium, we could start to talk about the dollar having reached a peak.

This could also mean GBP/EUR has peaked just shy of 1.16.