USD: Dollar upside capped
The US dollar index pulled back from an attempt to reclaim the 99 mark as a renewed injection of optimism filtered through market sentiment yesterday on revived de‑escalation hopes. The White House is reportedly discussing Iran’s latest interim proposal to reopen the Strait in exchange for ending the blockade of Iranian ports, while postponing more complex negotiations over the country’s nuclear programme. Markets, however, are increasingly fatigued by reacting to one‑off headlines and are becoming more demanding, requiring sustained confirmation to continue supporting the de‑escalation narrative. A move back above 99 therefore appears warranted in the coming days should weekend developments around Iran’s proposal fail to be met with more conciliatory signals from the US side.
At the same time, it is notable that as risk sentiment improved through April, the US dollar has struggled to hold its ground. When oil traded above $100 per barrel for most of March – at the peak of risk‑off sentiment – the dollar closely tracked these moves, reaching similarly elevated levels. Despite oil prices revisiting March highs today, the dollar is now trading significantly lower. Risk sentiment has therefore acted as the key amplifier – or dampener – on recent dollar price action, which otherwise has tended to move mechanically with oil. This dynamic suggests that, unless we see a meaningful re‑worsening of tensions between Iran and the US, a sustained reclaim of the 100 mark appears highly unlikely. The cap on more substantive upside is further reinforced by the Federal Reserve, which is due to hold its policy meeting tomorrow. While the Fed’s hawkish credibility should exceed that of its peers, it is simply not in a position to communicate a more forceful hawkish bias in the absence of data that would convincingly support such a stance, capping, in turn, rates-implied bullish impetus on the dollar.
For today, we expect the DXY’s price action to stay anchored around the 98.500, barring significant developments on the geopolitical front.
EUR: EUR/USD stabilises above 200‑day
EUR/USD hovered above the 1.1680 level, which coincides with the 200‑day moving average – a widely followed gauge of long‑term momentum. This resilience underscores markets’ still‑intact, albeit bruised, sense of optimism that the conflict in the Middle East will be resolved in the near term, particularly under a scenario in which the Strait of Hormuz is reopened. While bouts of re‑escalation persist, the broader trajectory continues to point toward tentative de‑escalation.
Indeed, after trading below the 200‑day moving average for most of March, the pair re‑established itself above this level in early April as de‑escalation momentum gained traction.
With little in the way of data today, and with the Fed and ECB meetings scheduled for tomorrow and Thursday respectively, we expect consolidation around the 1.17 handle, with limited directional impetus as markets await further clarity on both the geopolitical front and central bank signals. Absent any significant geopolitical developments, we continue to favour mild downside for the euro relative to the dollar this week. This view is anchored in the Fed’s relatively hawkish leanings, which we see as more credible to markets given expectations that the US economy will prove more resilient than the eurozone in absorbing any spillover from ongoing geopolitical risks. Yet we do not view this factor as a sufficiently strong bearish impulse to drive a clear‑cut break below the 200‑day.
GBP: Politics to test sterling’s resolve
Sterling started the week mixed, reflecting the tension between resilient global risk appetite and rising oil prices. On Monday, the pound advanced against safe‑haven and low‑yielding peers but underperformed high‑beta commodity FX, including the Scandis and Antipodeans. Overnight, a hawkish hold from the Bank of Japan has weighed on GBP/JPY whilst further gains in oil have dragged GBP/USD towards 1.35 into Tuesday’s session.
Even so, the broader sterling backdrop remains constructive. GBP/USD is on track for its biggest monthly gain in over a year (>2%), consistent with historically strong April seasonality. After breaking out of the late‑January to March downtrend, the pair has remained supported above its key daily moving averages, helped by easing conflict risks. Near‑term price action looks more like consolidation than reversal, suggesting the market is catching its breath after a sharp recovery. On balance, the rally should re‑assert itself, though ongoing uncertainty around US–Iran negotiations is likely to cap upside momentum for now.
Elsewhere, GBP/EUR retains scope to grind higher. The UK–Eurozone economic surprise differential has climbed to a two‑year high, pointing to a widening gap in relative macro momentum. While the relationship is far from mechanical, the divergence suggests that sterling has yet to fully reflect the extent of the UK’s outperformance relative to the Eurozone.
GBP/EUR upside is further validated by supportive yield and OIS differentials, firmer UK PMI trends, and a relatively hawkish BoE, suggesting the cross has yet to fully price the UK’s macro and policy outperformance versus the euro area.
Near‑term domestic policy may offer some support, with the Bank of England expected to deliver a hawkish hold this Thursday. However, the caveat lies in politics, where renewed leadership speculation around Prime Minister Starmer could reintroduce a fiscal and uncertainty premium into gilts, posing a potential headwind for sterling. Parliament will vote today on whether to open an inquiry into Starmer over the Mandelson appointment, just days ahead of May 7 local elections widely expected to weigh on Labour’s authority.
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Calendar: April 27-May 01
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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.
