USD: Dollar drops over 1% as oil collapses
US President Donald Trump stepped back from earlier warnings of large‑scale strikes on Iran, and the subsequent announcement of a two‑week ceasefire has unleashed one of the broadest global relief rallies of the year. Markets moved immediately on Iran’s commitment to reopen the Strait of Hormuz, with risk appetite surging across equities, bonds, commodities, crypto and FX.
Equities led the charge: Euro Stoxx 50 futures +5% (the strongest since 2022), S&P futures +2.6%, and the MSCI APAC +5%, driven by standout gains in the Nikkei (+5.4%) and Kospi (+7%). Cryptocurrencies and precious metals are also sharply higher as investors rotate out of defensive positioning.
Bonds have rallied on expectations that the ceasefire will cool inflation pressures, pushing the US 10‑year yield to a near three‑week low. The most dramatic move, however, has been in energy. With Iran signalling that safe passage through Hormuz will be possible for the next two weeks, crude has posted its steepest drop in almost six years — WTI down as much as 19%, Brent down 16% — removing the supply‑risk premium that had dominated markets since late February.
The easing of supply constraints has also removed a key pillar of the US dollar’s wartime strength. The USD had rallied consistently since late February on haven demand and because higher crude prices tend to support the US economy as a net exporter. That premium is now unwinding. The dollar is weakest against high‑beta currencies such as the ZAR and KRW, while China’s yuan surged to a three‑year high after the PBoC delivered its largest daily fixing adjustment in a month. The NZD also outperformed after the RBNZ revealed it had discussed the possibility of a rate hike.
But the dollar’s story is more nuanced than a simple unwind. While de‑escalation removes the immediate geopolitical bid, the asymmetry persists. US data resilience — reinforced by last Friday’s labour report — and the risk that energy prices feed back into inflation later in the year leave room for a hawkish repricing of Fed expectations. Europe, by contrast, faces a more structural challenge: an energy‑driven growth shock that blunts the currency impulse from tighter ECB pricing. The result is a USD that may drift lower on ceasefire headlines, but retains a durable floor beneath the surface.
Overall, the sustainability of this risk‑on move now hinges on whether the ceasefire holds in practice. Early reports of attacks in the UAE, Israel and Kuwait – even after the announcement – highlight how difficult it may be to fully halt hostilities, especially given the decentralised nature of Iran’s military structure. The next test comes with Friday’s talks in Islamabad, which will determine whether the two‑week window can evolve into something more durable.
For now, the path of least resistance is equities up, oil down, USD softer. But the greenback’s underlying resilience remains intact in a world still defined by episodic geopolitical stress and constrained policy flexibility. The coming days will show whether this is a genuine turning point or another short‑lived pivot by Trump reminiscent of last year’s tariff reversals.
EUR: Ceasefire propels euro above 1.17
The ceasefire has flipped the FX landscape on its head, and the euro is one of the clearest beneficiaries. EUR/USD has already jumped more than 1.5% this week, slicing through key daily moving averages and now pressing above 1.17 — levels that looked unreachable just days ago when oil was spiking and the dollar’s wartime premium was firmly in place.
The drivers are straightforward. The dollar’s haven demand has evaporated at the same time as its terms‑of‑trade advantage has weakened following the collapse in crude prices. Europe, meanwhile – one of the most exposed regions to the Hormuz shock – is seeing an immediate easing of its energy risk premium. The ~15% fall in European natural gas futures at the open also supports the move. That combination naturally lifts EUR/USD and forces an unwind of defensive USD longs accumulated through the conflict.
The question now is whether the euro can sustain a break above 1.17. The ceasefire removes the immediate downside tail risk, but it doesn’t resolve Europe’s structural vulnerabilities, nor does it eliminate the potential for renewed USD strength if US data continue to outperform or if energy prices re‑accelerate later in the year. Reports of continued attacks in the region also highlight how fragile the truce remains.
For the moment, though, the path of least resistance is higher for the euro. The dollar is giving back its wartime premium, technicals have flipped decisively in the euro’s favour, and the market is rewarding currencies with high beta to global risk sentiment and heavy reliance on energy imports. If the ceasefire holds and shipping lanes genuinely reopen, EUR/USD has room to probe higher before the underlying macro divergences reassert themselves.
GBP: Sterling surges over 1% versus dollar
It’s no surprise to see GBP/USD surging more than 1% to trade back above 1.34 on the latest ceasefire news. The pound’s jump reflects a rapid unwinding of safe‑haven dollar demand and a sharp reversal in the geopolitical risk premium that had dominated FX markets for weeks. GBP/USD looks to have broken out of its short-term downtrend, taking out key moving averages, though the 50-day located at 1.3448 is acting as a barrier for now.
The rates market reaction has been just as dramatic. Only last week, traders were pricing almost three BoE hikes for 2026 as energy‑driven inflation fears intensified. That has now collapsed to just one hike, as the ceasefire removes the tail‑risk of further oil‑price spikes and eases concerns about a prolonged supply‑shock inflation cycle. UK‑specific inflation dynamics, particularly the slow pass‑through of energy prices into household bills, had made the BoE curve especially sensitive to geopolitical developments. With the immediate inflation threat receding, that premium is being priced out quickly.
For sterling, the shift cuts both ways. The easing in geopolitical stress supports risk appetite and reduces the dollar’s defensive bid, helping GBP/USD rebound. But the sharp dovish repricing in UK rates also removes a key pillar of sterling’s recent resilience. If the ceasefire holds and energy prices stabilise, the pound may benefit from improved global sentiment – yet without the yield advantage that previously cushioned it.
Yield tailwinds fading, risks rising versus euro
Sterling initially outperformed the euro at the onset of the Middle East conflict, rising nearly 1.5% as the sharp hawkish repricing in BoE expectations gave GBP a clear yield advantage. Positioning amplified the move: investors were heavily long EUR going into the crisis and were forced to unwind, while sterling was already a consensus short, limiting the scope for fresh bearish pressure.
But that early strength has faded. GBP/EUR has fallen for three consecutive weeks after being firmly rejected above 1.16, reinforcing the view that the trend has turned lower since mid‑March. The 1.16 level is structurally important — it is effectively the post‑Brexit average. One standard deviation above (1.20) and below (1.12) has defined the key resistance and support bands for most of the past decade. After failing at the 1.20 ceiling early in 2025, the cross has mean‑reverted and is now trapped between 1.16 and 1.1430, a range that has held since last July. A decisive break below 1.14 would expose the lower bound near 1.12.
The macro backdrop makes that downside risk more credible. The UK faces a larger growth hit from the conflict than most major economies, and the rates channel — while still supportive — is becoming increasingly fragile. The BoE’s hawkish repricing is driven by stagflationary pressure, not stronger fundamentals, and higher yields in a supply‑shock environment tend to sharpen growth concerns rather than fuel currency appreciation.
Political risk is also coming into sharper focus. With the May election one month away, investors are wary that a Labour government could lean into more expansive fiscal commitments to consolidate support. A perceived shift toward looser, less sustainable spending would likely unsettle gilt markets, steepen the long end of the curve and weigh on sterling via the sentiment channel.
In short: GBP/EUR’s early conflict‑driven resilience has given way to a more fragile, growth‑sensitive dynamic. The technicals are softening, the macro risks are rising, and the political calendar is turning into a headwind rather than a catalyst.
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Calendar: April 06-10
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
