Trump's optimistic announcements on Friday regarding a possible agreement with Iran and the reopening of the Strait of Hormuz were greeted with a severe fall in oil prices and a sharp move higher in risk assets. The former proved to be short-lived.
US stocks hit an all-time high, and most other key indices worldwide are not far from doing so. The US dollar retreated and is now trading near pre-war levels. Contradictory messages from Iran's leadership may mean that initial hopes were premature. They certainly suggest a lack of clear hierarchy on the Iranian side, which means that these moves may be partially reversed over the next few trading days. However, markets really seem to be pricing in a lack of appetite from either the US or Iran for renewed hostilities, even as the current ceasefire is set to expire on Wednesday.
This week, the economic calendar is dominated by the April PMI surveys of business activity, which will be released worldwide on Thursday (23/04). These, the most timely releases in most economic areas, are even more critical than usual, as we are grappling for any information about the economic impact of the Iran war. UK employment and inflation data will also be important for sterling.
Markets are still driven primarily by war headlines, however. As mentioned, the current ceasefire expires on Wednesday, and signs are emerging of fractures within the Iranian chain of command, which has sent contradictory signals about the reopening of the Strait of Hormuz. This remains key for worldwide energy prices, with Brent crude oil once again back to the threshold of $95 per barrel.
USD
The dollar fell last week on news that the Strait of Hormuz was reopening, as well as a slew of weakish second-tier macroeconomic reports. The currency is now close to unwinding all of its war-related risk premium. That said, the more pessimistic news released over the weekend gave it some short-term respite.
At the time of writing, Iranian officials have not yet committed to the second round of talks, having been deterred by the US attack on and seizure of an Iranian ship in the Strait. A key obstacle to US–Iran negotiations continues to be Iran’s nuclear programme, ongoing attacks on Lebanon, and the US blockade. This disruption to the de-escalation process could provide short-term support for the dollar, though we remain bearish in the medium term.
GBP
Domestic political risk in the UK is emerging as the third factor driving sterling, together with war headlines and macroeconomic data. The latter was supportive of the pound, as the February monthly GDP came out much stronger than expected. However, the fallout from the Mandelson affair and its impact in further weakening Starmer's leadership may compound worries about the May elections and the possibility of a turn to the left, which would likely imply higher government spending.
For now, the positive news about the Iran war has lifted the pound, which closed on Friday above pre-war levels against both the euro and the dollar. Aside from swings in global sentiment, we will closely monitor this week’s economic data, with a plethora of releases scheduled, including the monthly labour report (Tuesday, 21.04), March inflation (Wednesday, 22.04) and flash PMIs (Thursday, 23.04).
EUR
The euro rallied last week on lower energy commodities prices, particularly natural gas (TTF), which trades roughly 50% lower as compared to its March peak. We think that the euro's current level reflects a fair balance between the general long-term downward pressure on the dollar due to the de-dollarisation process and the danger that markets are overestimating the ECB's future hikes in reaction to the energy price spike. This spike will likely not trigger second-round effects if the war is resolved relatively quickly.
Deep dives and expert insights:
- G10 currency market report - Get the latest analysis on major currencies.
- G3 FX Outlook - April 2026
- Latin America FX Outlook - April 2026
- Iran War: Dollar slumps on 2-week ceasefire
- Iran War FX Scenarios
