The Trump Card Reversed: Peace Gets Repriced

The promise of peace vanished the moment it arrived. Trump's Iran address erased ceasefire hopes overnight. Oil cleared $106. Sterling and the euro surrendered their gains. The dollar climbed back above 100. Geopolitics has once again outmanoeuvred the charts. Risk sentiment cracked. FX recalibrates ahead of US payrolls and a long weekend.

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GBP: Sterling Slips as War Jitters Reset the Dial

Cable: 1.3227 | EURGBP: 0.8718

Before Trump spoke, sterling held. Traders waited. The speech landed. The selling followed.

Cable and the euro each dropped 0.3% against the dollar in the aftermath, surrendering two sessions of ceasefire-driven gains. Domestic data added to the weight. The UK S&P Global Manufacturing PMI dipped to 51.0 in March from 51.4. This figure missed the 51.2 consensus, revealing a quiet slowdown in British industrial growth.

President Trump’s rhetoric shifted the narrative from a quick "off-ramp" to a "swift, decisive" continuation of conflict. This extension of war jitters puts the Bank of England (BoE) in a bind. The BoE previously signaled a potential rate hike as early as April to combat inflation linked to Middle East tensions. However, slowing manufacturing data suggests the high-interest-rate environment is already biting. The pound now navigates a narrow corridor between hawkish central bank bets and deteriorating growth fundamentals.

Against this backdrop, the BoE’s hawkish signal has capped the EURGBP pair and has given sterling a relative edge over the single currency going into Thursday's session. With no ceasefire on the horizon and oil sitting elevated, the BoE's next decision carries more weight than usual. Policy divergence between the BoE and the European Central Bank (ECB) has been the thread keeping sterling above the euro. However, that edge narrows fast if UK data keeps softening.

Iran denied Trump's assertion that its president had asked for a ceasefire. This flash of diplomatic noise has widened the risk premium across GBP pairs through Thursday's session. Volatility in the pound has surged as the market reprices the "war duration" risk. The mismatch between the BoE's hiking intentions and cooling PMI data has historically created a high-stakes environment for sterling. Sterling still finds buyers on dips, but with fading conviction.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3300, 1.3350 and Support sits at 1.3200, 1.3150

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8750 and Support sits at 0.8680

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EUR: Eurozone Factories Shine, but the War Dims the Euro

EURUSD: 1.1529

Eurozone data landed solidly. Yet, the euro slipped to 1.1529 against the dollar despite a surprisingly upbeat manufacturing report. The Eurozone HCOB Manufacturing PMI rose to 51.6 in March, its strongest reading in 44 months. While the headline figure impressed, the underlying details showed a fragmented recovery. Germany and Italy drove the revision higher, but French activity stagnated and Spain contracted.

The euro finds itself in a tug-of-war. Stronger industrial activity usually boosts a currency. Conversely, Eurozone inflation data came in below forecast for March, suggesting the ECB might have room to breathe. Despite geopolitical pressure from the Iran conflict, the softer print supported the euro through the first half of the week. Investors read it as a signal that the economic impact of the war may prove limited and short-lived.

Trump’s "hit them hard" stance suggests otherwise. Higher oil prices threaten to import inflation back into the Eurozone, potentially forcing the ECB to stay aggressive despite the uneven manufacturing recovery.

Post Trump's speech, the dollar bid returned fast. EURUSD pulled back from its weekly highs. The structural case for the euro sits intact underneath all of this. An industrial recovery with contained inflation is a sound base. But the war narrative drowned it out on Thursday.

The euro is currently caught between local industrial strength and global geopolitical weakness. The risk of stagflation, i.e. stagnant growth paired with high inflation, is rising as Brent Crude hovers near $106. The Strait of Hormuz accounts for around 20% of global oil and gas flows, and no reopening timeline is on the table. Traders are watching the 1.1500 handle closely.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1600, 1.1650 and Support sits at 1.1500, 1.1450

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USD: Safe-Haven Flows Push DXY Back Above 100

DXY: 100.32

The logic of Thursday's move was clean. Ceasefire optimism built across Tuesday and Wednesday. The dollar softened. Trump spoke. The optimism cleared. The dollar came back.

DXY climbed close to 0.5% after losing close to 1% over the prior two sessions. Investors dumped risk assets, sending the Australian and New Zealand dollars down roughly 0.8%. The dollar emerged as the only winner in a "sea of red" across global bourses.

Trump's address confirmed his “core strategic objectives” in Iran are nearing completion. However, he gave no timeline for an end to the conflict. He reiterated threats to hit electrical generating plants and oil infrastructure. He stated the US does not depend on the Hormuz Strait and expects it to reopen once the war concludes. That answer gave Asia's energy-dependent economies nothing to work with.

Treasury yields climbed in Asian trading hours as concern grew that elevated oil prices shut the door to Federal Reserve (Fed) rate cuts. The ISM Manufacturing PMI is now in expansion for a third straight month. The prices paid index recorded its steepest two-month jump since June 2022, up 19.3 points. Firms cited the Iran war as a direct input cost pressure for the first time in this reporting cycle, alongside existing uncertainty from US trade policy. High oil prices, stubborn inflation, and slowing growth: the stagflation combination the Fed is least equipped to navigate. The dollar benefits from both its safe-haven status and the prospect of "higher for longer" U.S. interest rates.

Friday's March non-farm payrolls print is the next focal point. Consensus sits at 60,000 new jobs, a steep deceleration from prior readings. A weak print could revive rate-cut expectations that elevated oil prices have extinguished. A strong print keeps the Fed on hold and the dollar in demand.

The dollar seems to be calling the shots. Trump’s address proved that geopolitical "certainty" is a mirage. With the Fed likely to stay hawkish to combat energy-driven inflation, the dollar's upward trajectory has found new life.

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Yen and Antipodeans: The Gravity of Oil

AUDUSD: 0.6871 | NZDUSD: 0.5703 | USDJPY: 159.25 | GBPJPY: 211.02

Risk-sensitive currencies paid the steepest price. The Aussie and Kiwi dollar both moved towards two-month lows. Meanwhile, Asia absorbed the worst of the oil shock; since economies across the region depend on Middle Eastern energy, disruption at Hormuz hits them first and hardest. As a result, Treasury yields rose as investors anticipated that higher oil prices would fuel persistent inflation.

The Japanese yen traded at 159.25, staying clear of the 160.00 "line in the sand" where Japanese authorities have typically intervened. The Bank of Japan faces challenges in sustaining domestic reflation and managing yen levels as oil-driven inflation affects the global rate environment.

Trump called on Gulf nations to take the lead in reopening the Strait. However, no Gulf state has committed to doing so. The prospect of a further two to three weeks of military action, as signalled in Trump's address, keeps the energy disruption premium priced into Antipodean and Asian currency pairs.

Asian equity indices closed broadly lower, and US Treasuries sold off in tandem. With most major Western exchanges closed on Friday for the Good Friday holiday, participants trimmed risk exposure through Thursday's close to reduce potential exposure to weekend market movements. Because thin Friday liquidity can amplify any move, the shift in U.S. foreign policy has consequences for G10 and EM pairs. As the market enters a long holiday weekend, the urge to de-risk is palpable.

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Current Rate Table:

(as at the time of writing)

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Market Lookahead

Fri, 3 April

• U.S. Non-Farm Payrolls (March)

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