April Fools or A Final Pivot?

Ceasefire hopes are lifting stocks on the most ironic day in the calendar. Sterling and the euro rose. EU inflation printed below forecast and the dollar didn't move an inch. Tonight, Trump speaks on Iran. FX trades with caution as geopolitics rewrites the script.

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GBP: Yields Jump, Energy Shocks Caps the Upside

GBPUSD 1.3250 | EURGBP 0.8729 | GBPCHF: 1.0565

Sterling climbed to 1.3250 against the dollar today, yet the monthly view tells a harsher story. The pound faces a 1.9% monthly loss, its steepest decline since early 2025. While hopes of a ceasefire in the Middle East sparked a temporary rally in global equities, sterling is still caught between fleeting geopolitical relief and a stubborn supply-driven energy shock.

This energy dynamic is particularly relevant for the UK, which imports significantly more energy than it produces. As a result, rising energy costs typically weaken the currency through terms-of-trade channels, compressing household spending and forcing a wholesale reassessment of monetary policy.

The Bank of England (BoE) has seen the most dramatic repricing of any major central bank: expectations flipped from two rate cuts priced in for this year to at least two hikes. This hawkish shift pushed British two-year gilt yields to surge by 94 bps in March, the most since the late-2022 UK gilt crisis, outpacing equivalent moves in the US and the eurozone. The yield surge provides sterling with structural support even as the trade shock pushes it lower. Previous comparable energy shocks pointed to roughly a 4% decline in the pound against the dollar; this move has been more contained, partly because the aggressive BoE repricing cushioned it.

These contrasting forces have shaped sterling's recent performance. Sterling shed 2.1% against the dollar in March. Meanwhile, the euro fell 1% on the pound, its steepest monthly drop since February 2025. The GBPCHF pair sits at 1.0565; the pound notched a 2% gain on the Swiss franc in March, its strongest such move in two years. Swiss National Bank threats to intervene and weaken the franc also played into the GBPCHF gain.

Traders are navigating a dual narrative in sterling at the moment, with energy headwinds pulling one way and hawkish BoE repricing pulling the other, leaving two-way risk elevated. At the same time, gilt yields at these levels are attracting the attention of duration-focused investors. Volatility, meanwhile, aligns with shifts in rate expectations and geopolitical updates.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3320, 1.3450 and Support sits at 1.3200, 1.3050

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8750, 0.8800 and Support sits at 0.8700, 0.8650

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EUR: Inflation Heat Tests Frankfurt’s Resolve

EURUSD 1.1571

The euro touched a one-week high near $1.1570, but it still posted a 2.25% monthly decline. Euro bulls monitor a move beyond the 61.8% Fibonacci level; follow-through buying stalls below 1.1600.

March inflation data arrived with a bite: Eurozone HICP surged to 2.5% YoY (forecast: 2.7%; prior: 1.9%), with MoM jumping to 1.2% (prior: 0.6%). The oil shock drove eurozone inflation past the ECB's 2% target. Core HICP, excluding volatile food and energy, rose to 2.3% YoY, signalling that price pressures have become structurally entrenched.

The German two-year yield fell 3.3 bps to 2.588% on Wednesday as participants refocused on the growth risk posed by persistently high energy costs. Government bond yields retreated from multi-year highs set earlier this month.

ECB Governing Council member Madis Müller recently affirmed that an April rate hike is a distinct possibility. High energy prices act as a catalyst for "second-round" inflation effects, pressing the ECB to tighten despite cooling growth. A clear policy split emerges: the ECB edges toward three hikes, while the Federal Reserve’s (Fed) path flattens. This shift in the "interest rate differential" drives the euro’s latest attempts to find a floor.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1600, 1.1680 and Support sits at 1.1500, 1.1450

The "lower for longer" era will likely end for the Eurozone. With inflation overshooting targets and policymakers openly floating April moves, the euro’s sensitivity to data releases intensifies. For the EURUSD pair, developments in Washington steer the pair far more than anything out of Frankfurt right now. Until the Fed issues clearer direction or the euro area mounts a more convincing recovery, the topside looks capped.

The euro presents a split narrative. Inflation pushes policy tighter while growth tugs the other way. Price action reacts rather than leads. Traders track external cues, especially from the US.

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USD: Net Exporter. Safe Haven. In Control.

DXY 99.78

The dollar index (DXY) holds firm at 99.78. Despite optimism surrounding a potential end to military actions in Iran within three weeks, the dollar retains its safe-haven crown. Markets reacted sharply to reports that the UAE might enter the conflict to secure the Strait of Hormuz, reminding investors that the "finish line" in the Middle East is still blurry.

Ceasefire hopes stirred risk appetite without producing a decisive directional shift. Brent Crude sat at $104.50, retracing some of Tuesday's decline. Wall Street soared on Tuesday; Asian equities outside Japan surged 4.3% on Wednesday, snapping a four-day losing streak.

The dollar has drawn two distinct sources of support since the Iran conflict began in late February: safe-haven flows and the energy dynamic. As a net energy exporter, the US is better able to absorb oil disruptions than Europe and Asia. This structural advantage is now reflected in dollar pricing.

Rate expectations have repriced accordingly: the Fed had two cuts priced in at the start of this period; it is now pricing no change. Fed funds futures put a 25bps cut at the July meeting at a 32% probability (up from 7.5% the prior day), a modest but notable shift.

Domestically, the focus shifts to Friday’s US payrolls report. After an unexpected 92,000 job loss in February, a bounce-back of 60,000 jobs is anticipated. A strong labour market allows the Fed to maintain its cautious stance on rate cuts, keeping the dollar’s yield profile attractive to global capital.

A sharp deterioration in the labour market could revive Fed cut expectations that rising oil costs had priced out. Kansas City Fed's Schmid repeated on Tuesday that inflation is the larger risk, cautioned against complacency, and called the oil price surge "a modest drag" and less severe than the 1970s shock. Meanwhile, Iran's Revolutionary Guards issued a new threat on Wednesday: they will target US companies in the region in retaliation for strikes on Iran from Wednesday.

Conflicting signals from Washington i.e., Trump's reference to a two-to-three week window to end the conflict, set against Hegseth's warning that the next few days will be decisive, are keeping investors from taking strong directional positions. Equities surged on the ceasefire narrative. The dollar, characteristically, stayed measured.

Geopolitical "off-ramps" often turn into "dead-ends." The dollar’s dual role as a safe haven and a high-yield currency makes it the primary anchor in a volatile market.

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Other Currencies: Mixed Signals, Local Drivers

The yen pulled back from its YTD low of 160.46, trading back through the 160 level. Rising expectations of a Bank of Japan hike in April are underpinning the yen, creating a tug-of-war with dollar strength. The USDJPY pair looks set to grind sideways in the upper 150s for now. South Korea's Kospi led Asia's rally, surging as much as 7.7% after Korean exports smashed expectations in March. Japan and Taiwan - key nodes in the global tech supply chain, followed closely. Japanese corporate sentiment heated up in March.

The Aussie dollar pushed to $0.6910, while the kiwi slipped 0.1% to $0.5737, against the US dollar. In crypto, bitcoin and ether fell to their typical response when uncertainty tips from cautious to genuinely unresolved.

The broader question hanging over all of this: will the ceasefire narrative hold, or will the market turn out to have fooled itself on the most ironic day of the year?

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Current Rate Table:

(as at the time of writing)

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Market Lookahead

Wed, 1 April

• Eurozone HCOB Manufacturing PMI (Mar)
• UK S&P Global Manufacturing PMI (Mar)
• Eurozone Unemployment Rate (Feb)
• UK Financial Policy Minutes
• US ADP Employment Change (Mar)
• US ISM Manufacturing PMI (Mar)
• US President's address on Iran War (01:00 GMT)

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