MARKET REPORT
Dollar Faces Inflation Test as Iran Tensions Ease
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- GBP: Pushing through March highs on de-escalation optimism
- USD: Haven demand fading as Iran diplomatic signals emerge
- EUR: Modest support from Hungary's pro-European election result
Recap
US-Iran peace talks in Islamabad broke down after 21 hours, with VP Vance departing and Iran accusing the US of "maximalism and shifting goalposts". Trump subsequently ordered a Strait of Hormuz blockade, with ship traffic appearing to halt almost immediately. Oil surged 6.8% to $101.70 and USD rallied sharply on haven demand, before both pared gains after a NY Post report suggested Iranian officials are studying the possibility of abandoning uranium enrichment as a condition for ending the war.
On the domestic side, UK business confidence fell to a 6-year low per Deloitte, with firms cutting jobs at the fastest pace so far this year – adding to the challenging backdrop for GBP. PM-elect Magyar's landslide victory in Hungary is expected to unlock billions in EU funding previously blocked by Orban, providing modest EUR support.
Overnight, sentiment shifted materially. President Trump indicated Iran had reached out to his administration following the weekend's collapse in talks, cooling haven demand for USD quickly. GBPUSD has pushed through the March highs and is now trading at its best levels since late February as traders price in the potential for de-escalation.
Today
Market rates
*Daily move - against G10 rates as of 5pm BST on 13.04.26
** Indicative rates - interbank rates as of 5pm BST on 13.4.26
Data points
Click here for a calendar of upcoming economic events Our thoughts
Today's session is centred on US PPI, with consensus expecting a sharp acceleration to 1.20% MoM in March from 0.70% previously – the largest monthly jump since the 2022 inflation surge – largely reflecting the surge in energy costs following the escalation of the Iran conflict. Core PPI is expected to hold steady at 0.50%, suggesting underlying inflation pressures remain elevated but contained. A hotter-than-expected print would support USD by reinforcing the case for the Fed to hold rates higher for longer, whilst a softer reading would add further momentum to the recent USD weakness.
Beyond the data, the dominant driver remains geopolitical. Any concrete progress in US-Iran negotiations would likely extend USD weakness and benefit risk-sensitive currencies including GBP, NOK and CAD. However, persistently high energy prices continue to pose a dual threat – supporting inflation whilst weighing on growth. EUR faces headwinds as markets reassess whether the ECB can deliver the two rate hikes currently priced through July amid deteriorating growth dynamics. With PPI printing this afternoon and geopolitical headlines continuing to drive sentiment, another volatile session is likely.
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