FX Update: Hormuz Headlines Drive Dollar Volatility, Political Uncertainty Pressures Sterling, Euro Remains Dollar‑Led.
USD – Volatile on Hormuz headlines but ultimately supported, with safe‑haven demand and higher oil prices underpinning the dollar despite growing headline fatigue.
EUR – Largely reactive and dollar‑driven, with limited domestic catalysts and near‑term direction dictated by geopolitics and broader risk sentiment.
GBP – Under sustained pressure as political uncertainty resurfaces, with markets pricing higher risk premia ahead of elections and a critical BoE decision.
USD
The dollar has experienced a sharp round‑trip since Friday as markets reacted to conflicting headlines around the Strait of Hormuz. The dollar index initially fell around 0.7% after Iran’s foreign minister stated on X that the strait was “completely open” to commercial vessels. That move quickly reversed, with the index rebounding roughly 0.8% by this morning once it became clear that the strait remains closed. Geopolitical tensions remain elevated, with the US military having seized an Iran‑linked vessel and Iranian officials signalling that there are currently no plans for a second round of negotiations with Washington. That said, headline fatigue is beginning to set in, and the coming days may offer clearer signals on underlying intentions, with US negotiators already en route to Pakistan. The data calendar also becomes more active this week. US retail sales and Kevin Warsh’s Senate hearing are due tomorrow, followed by PMI releases on Thursday and the University of Michigan consumer sentiment survey on Friday. Today also brings Canada’s March CPI report, where higher oil prices are expected to push headline inflation back above the 2% level.
EUR
It is a relatively quiet week for the euro, with Thursday’s PMI releases the main scheduled data highlight. In the near term, EUR/USD is expected to remain firmly dollar‑driven, with market focus staying on Middle East developments and broader risk sentiment. Several ECB speakers are due over the coming days, though the heavy flow of commentary last week suggests limited scope for fresh policy signals. The next notable eurozone data point is Tuesday’s ZEW economic sentiment survey, which may offer some insight into confidence but is unlikely to materially shift current market dynamics.
GBP
Political risk has re‑emerged as a key headwind for sterling following fresh revelations tied to the Mandelson scandal late last week. Questions around Keir Starmer’s leadership have resurfaced, with renewed calls for resignation increasing uncertainty and weighing on sentiment. The gilt market remains particularly sensitive to the possibility of a more fiscally loose successor, a scenario that investors fear could undermine the UK’s fiscal credibility. Attention is now turning to next month’s elections, which are shaping up to be an important event risk for sterling. It is also a heavy week for UK data, with the Bank of England set to take in its final readings on wage growth tomorrow and inflation on Wednesday ahead of next week’s policy decision. Until greater clarity emerges on both the political and policy fronts, sterling is likely to remain on the defensive.