Dollar Slides on Iran De-escalation Hopes as Rate Expectations Drive FX Divergence.

USD – Weakened notably as geopolitical tensions ease, with optimism around de-escalation in Iran reducing safe-haven demand and pushing the dollar lower.

EUR – Supported by relatively firm rate expectations despite a slight inflation miss, with markets still pricing multiple hikes and maintaining a constructive outlook.

GBP – Mixed performance: stronger against the softer dollar but lagging peers, as repricing of rate expectations and sensitivity to energy prices weigh on sentiment.

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USD:

The dollar has taken a sharp hit, falling around 1% against most major currencies as optimism builds around a potential de-escalation in Iran. Comments from Trump suggesting the conflict could end within weeks, alongside signals from Iranian officials indicating openness to a deal, have boosted risk sentiment.

This shift has driven a significant move in commodities, with Brent crude dropping 17% to around $100/bbl at the open, further pressuring the dollar as risk-sensitive currencies rebound. However, uncertainty remains around the Strait of Hormuz, particularly given ongoing strategic considerations even if hostilities ease.

Today’s data docket includes ADP employment change (expected at 40K), retail sales, and the ISM manufacturing index for March. The primary focus, however, will likely be Trump’s press conference in the early hours of tomorrow, which could set the tone for further dollar moves.

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EUR:

The euro remains relatively supported as rate hike expectations in the eurozone hold firm, even as markets dial back tightening bets in the US and UK. Current pricing still points toward two to three hikes in 2026, reinforcing a more stable outlook for the currency.

Yesterday’s CPI print came in slightly below expectations at 2.5%, but still marks a notable increase from February’s 1.9%, suggesting inflation pressures remain present.

The main data focus today is the eurozone unemployment release, which will provide further insight into the region’s economic resilience.

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GBP:

Sterling strengthened against the weaker dollar but underperformed relative to its peers, as markets scaled back expectations for Bank of England rate hikes. Only one hike is now fully priced, with a second carrying around a 75% probability.

The pound had previously benefited significantly from hawkish repricing during heightened geopolitical tensions, leaving it more exposed as those expectations unwind. Additionally, research indicates that UK growth could be more adversely affected than other economies if geopolitical risks persist.

Overall, GBP remains sensitive to both shifts in rate expectations and developments in energy markets, which continue to play a key role in shaping its near-term direction.

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