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Currency markets were a nervous place on Tuesday ahead of President Trump's deadline.
Sterling begins Wednesday at its strongest level against the US dollar in two weeks after the United States and Iran agreed a conditional, two-week ceasefire that would reopen the Strait of Hormuz. Brent crude oil futures cratered by more than 15% this morning as markets cheered the de-escalation, even though many questions around the flow of oil and gas remain.
In the end, yesterday’s concerning comments from the White House turned out to be a classic Trumpian move. Escalate to de-escalate was clearly the tactic, although the president’s threat to end “a whole civilisation” was hardly a diplomatic masterstroke. Conservative figures broke ranks to criticise his tactics, while Democrat politicians eyed legislation to forcibly stop Trump.
There was understandable anxiety in currency markets after the Easter weekend. Sterling moved by almost a cent against the US dollar as investors rushed into safe havens. All watches were set to 8pm Eastern time, or 1 o’clock in the morning in the UK. Since then, recovering risk appetite has sent the pound higher against its key rivals.
Despite the ceasefire, it is unclear just how quickly shipping will resume and whether the battered refineries and storage facilities are in a workable state. The current oil and gas crisis supply crunch is more serious than other famous episodes such as 1973 and 1979 put together, the head of the International Energy Agency (IEA) said yesterday. In an interview with the French press, Fatih Birol said developed economies would struggle, but less than developing nations, which would likely experience higher food prices and a faster overall increase in prices.
Economic data has obviously been sidelined in recent weeks as markets focus on oil and geopolitics. However, new orders for durable goods manufactured in the United States fell by 1.4% month-on-month in February, marking the third straight decline. That was a timely reminder of the economic pressures of a prolonged war.
The coming days are busy on the economic front. The US dollar will be under particular scrutiny ahead of FOMC minutes tonight and high-impact data across Thursday or Friday. Tomorrow morning’s German balance of trade data will also be closely watched after import and export volumes sank to start the year.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Glum mood
S&P Global’s UK services study for March found activity expanded at the slowest rate in eleven months. Rising fuel costs meanwhile sent input price inflation to its highest since April 2025, while business optimism fell to a nine-month low.
GBP/USD: the past year
EUR: Adverse outcome risk
A member of the European Central Bank’s governing council warned that the likelihood of an adverse outcome from the Middle East crisis may have increased. Dimitar Radev said the cost of inaction would increase once the effects fed through into economic output. Tuesday was broadly positive for the euro, even if the medium term outlook looks stormy.
GBP/EUR: the past year
USD: Maverick White House
The US dollar has benefited from safe haven flows during the oil crisis, but is getting harder by the day for investors to bank on America. Donald Trump’s threat to enact civilisational wipeout on Iran was another reminder of this new, unpredictable era of American leadership.
EUR/USD: the past year
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