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Markets are reopening after the Easter break into a potent combination of geopolitical risk and undigested economic data. The dominant force this morning is the Iran conflict, with Donald Trump’s deadline for escalated strikes on the country’s power plants and bridges set for tonight. No ceasefire has been reached. Iran rejected a 45-day peace proposal over the weekend and threatened to close a second shipping chokepoint – the Bab al-Mandab strait connecting the Red Sea to the Gulf of Aden.
Oil is holding above $109 a barrel. The Strait of Hormuz – which normally carries around a fifth of the world’s oil and gas – remains fully blocked. OPEC+ agreed to a modest output increase for May, but it is largely symbolic while Gulf producers cannot physically export through the strait. For businesses already absorbing higher energy and input costs, the supply picture has not improved.
Friday’s US Non-Farm Payrolls data landed while markets were shut for Good Friday. The headline was striking – 178,000 jobs added in March against a consensus of just 60,000. Unemployment edged down to 4.3% and wage growth cooled slightly. In normal circumstances that would have been a strong dollar story. Instead it barely registered, with oil and the Iran deadline overwhelming macro fundamentals. Today is when markets begin to price the data in.
The real test this week is inflation. Wednesday brings minutes from the Federal Reserve’s March meeting, Thursday delivers the core personal consumption expenditures (PCE) index – the Fed’s preferred inflation gauge – and Friday features the March consumer price index (CPI). Consensus points to a sharp jump in headline CPI, potentially the largest monthly acceleration since 2022. If core inflation also surprises higher, the case for any US rate cuts this year effectively disappears.
Here in the UK, the new tax year arrived last week bringing higher employer national insurance contributions, a higher national living wage and the end of hospitality business rates relief. Those cost increases have landed alongside purchasing managers’ index (PMI) data showing the economy barely expanding and input cost inflation at a three-year high. The Bank of England’s next rate decision on 30 April will be closely watched, though most economists expect rates to be held.
The European Central Bank faces a similar bind. Eurozone inflation jumped to 2.5% in March from 1.9% in February, and ECB Governing Council member Klaas Knot’s replacement, Olaf Sleijpen, said on Friday that the bank’s next discussion will be between raising rates or holding them steady. Cuts are off the table.
For currency markets, the dollar is in control. Sterling is weaker against the dollar this morning and broadly flat against the euro. Risk sentiment is firmly off and the week’s direction will be shaped by two things: whether Trump follows through on tonight’s deadline and what US inflation data reveals about how deeply the oil shock is embedding into broader prices.
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GBP: Squeezed from both sides
Sterling is under pressure against the dollar as safe-haven demand keeps the US currency bid. The domestic backdrop is no more helpful – the new tax year’s cost increases for employers have arrived just as PMI data shows the economy losing momentum and input prices surging. The Bank of England’s 30 April meeting looms, with most economists expecting a hold at 3.75%, though markets have swung sharply from pricing cuts to pricing potential hikes since the conflict began.
GBP/USD past year
EUR: Hike-or-hold debate sharpens
The euro is finding some support from hawkish ECB expectations but losing ground to the dollar on risk aversion. The key shift since last week is the explicit framing from Governing Council members that April’s meeting is a choice between hiking or holding – with cuts no longer part of the conversation. Eurozone inflation at 2.5% and the ZEW sentiment index crashing by nearly 48 points in a single month illustrate the stagflationary crosswinds the ECB is navigating.
GBP/EUR past year
USD: Blowout jobs data meets inflation reckoning
The dollar is firmer across the board. Friday’s massive payrolls beat reinforces the Federal Reserve’s reason to stay on hold, while safe-haven demand from the Iran conflict adds further support. This week’s data calendar is the heaviest since the war began – FOMC minutes on Wednesday, core PCE on Thursday and CPI on Friday will collectively determine whether the “transitory energy shock” framing holds or whether inflation is becoming entrenched. A hot core CPI reading would seal the no-cuts narrative for 2026.
USD/GBP past year
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