MARKET REPORT
Tensions Rise as US boards Iranian Cargo ship
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- A data-heavy week ahead with UK inflation, flash PMIs and ECB speakers set to drive FX direction
- Ceasefire durability remains the key market variable
- Risk off in play with Safe Havens higher and equities lower
Recap
The dominant story of last week was the gradual de-escalation of the Iran conflict, culminating in Tehran announcing the Strait of Hormuz is now "completely open" for commercial traffic on Friday. The USD Spot Index wiped out all gains registered since the Iran war began, closing at its lowest level since 27 February – but it's worth nothing that losses against GBP were limited.
For GBP, the week delivered a mixed picture. UK GDP grew 0.5% in February – the strongest monthly reading since January 2024 – but the positive surprise was quickly tempered by dovish BoE commentary. Bailey said the bank is in no rush to raise rates, Pill agreed markets had got ahead of themselves, and Breeden warned of a potential "rocky ride". GBPUSD failed to push through a key resistance level; and EUR outperformed GBP as ECB Governing Council members described two rate hikes this year as a "fair expectation" – a stark contrast to the BoE's cautious tone.
UK political risk resurfaced last week as PM Starmer faced renewed calls to resign over the Mandelson security vetting controversy. GBP weakened initially but recovered by Friday close of play. Starmer signalled his intention to stay on, pledging to address the matter in the Commons this week.
Geopolitical tensions between the United States and Iran escalated over the weekend, following reports that the US Navy fired upon and subsequently boarded an Iranian cargo vessel attempting to transit the Strait.
In response, markets have moved into a risk-off posture at the open, with safe-haven demand supporting the US dollar, while global equities have come under pressure.
Today
Market rates
*Daily move - against G10 rates as of 5pm BST on 17.04.26
** Indicative rates - interbank rates as of 5pm BST on 17.4.26
Data points
Click here for a calendar of upcoming economic events Our thoughts
It is a data-heavy week with UK inflation, labour market figures, flash PMIs across G10, and central bank commentary all likely to drive significant moves. Looking ahead, price action in the early part of the trading week is likely to remain heavily driven by geopolitical developments, with markets closely monitoring any signs of further escalation in US–Iran tensions. Any deterioration in the situation could reinforce defensive positioning, supporting further upside in the US dollar while weighing on risk-sensitive assets.
Tuesday brings UK jobs data at 07:00 BST, with wage growth expected to slow to 3.2% and unemployment forecast to hold at 5.2%. US retail sales also print Tuesday – a key read on whether the US consumer is holding up against the energy price shock.
Wednesday's standout release is UK CPI for March, with inflation expected to accelerate to 3.3% YoY from 3.0%, driven by a near 9% rise in fuel prices. This is likely just the beginning – Bloomberg Economics forecasts inflation ending the year 1.3 percentage points above pre-war levels, placing the BoE in an increasingly uncomfortable position between rising inflation and a softening economy.
Thursday is the busiest day. Flash PMIs print across the Eurozone and UK, with the UK composite expected to slip into contraction at 49.5 from 50.3, and the Eurozone composite barely holding above 50. US jobless claims and flash PMIs also print. ECB President Lagarde and Governing Council members are scheduled to speak ahead of the ECB's April 30 policy meeting – their tone on inflation will be key for EURUSD.
Friday rounds off the week with UK retail sales and the German Ifo survey. The broader geopolitical backdrop remains critical – with the Strait of Hormuz reportedly open, oil has pulled back sharply, but any reversal in the peace process would quickly reassert last week's themes.
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