While Hormuz Waits, Central Banks Hit the Deck

Strait of Hormuz stays shut, five central banks meet this week, AI earnings ignite Asian markets. Sterling steadies near highs, euro tests support, the dollar holds firm as Middle East risk and central bank signals set the tone for a heavy week ahead.

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GBP: Sterling Holds Ground but Needs the BoE to Deliver

GBPUSD: 1.3534 | EURGBP 0.8662

Sterling opened the week defending 1.3500 against a cautious dollar. Dip-buyers in Asia pushed the pair just below mid-1.3500s, up 0.10% on the day as US-Iran ceasefire hopes gave the dollar a brief knock. The near-term target for GBP/USD bulls sits at 1.3600, though that level requires follow-through.

The structural picture is more complicated. The US-brokered ceasefire has paused fighting but left no formal peace agreement for the conflict triggered by US-Israeli strikes on Iran on 28th February. The Strait of Hormuz, which carries roughly a fifth of global oil and gas, stays shut. This has kept energy prices elevated and inflation expectations uncomfortably sticky across the G10.

The Bank of England (BoE) is likely to hold its rate decision on Thursday. Investors are leaning toward a “higher for longer” stance rather than a softening dollar. The BoE, Fed, and ECB all face the same task: hold rates but signal enough hawkishness to maintain credibility. For sterling, the question is whether the BoE affirms the two 25bps hikes markets have already priced in for this year or tempers their expectations. A cautious tone from Governor Bailey could weaken GBP/USD to 1.3500; a hawkish one could put 1.3600 resistance in play.

GBP/JPY firms near 215.64, reflecting yen weakness as much as sterling strength, a pattern likely to persist unless the BoJ surprises on Tuesday.

Sterling moves reflect shifting expectations around inflation, oil supply, and policy tone.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3600 and Support sits at 1.3500

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8700 and Support sits at 0.8620

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EUR: Support Holds, Confidence Slips

EURUSD: 1.1724

The EUR/USD pair clawed back early losses through Monday's Asian session, recovering to trade around 1.1724 flat on the day, as the dollar's safe-haven bid softened following reports that Iran submitted a new proposal to the US via Pakistani intermediaries. The euro's recovery is fragile. The 20-day EMA is providing short-term support, but the fundamental backdrop does not seem to be cooperating.

Germany's GfK Consumer Confidence for May printed at -33.3 this morning; well below the consensus forecast of -29.5 and a marked deterioration from the prior reading of -28.1. A notable miss. German consumers are not absorbing the oil shock with equanimity. Confidence at these levels signals that domestic demand is softening precisely when the European Central Bank (ECB) needs room to manoeuvre.

The ECB’s MPC is to decide the deposit rate on Thursday. Like the BoE and the Fed, it is widely expected to stay on hold. The market has priced two more 25bp hikes from the ECB later in the year. ECB President Lagarde speaks on Tuesday before the monetary policy meeting. If her tone reads cautious, acknowledging the economic drag from Hormuz disruption and elevated energy costs, those hike bets may face front-end repricing. Market consensus is that no central bank should tighten right now simply to prove it is not behind the curve. If that framing lands on Wednesday, the euro's short-term rate premium could compress, sending EUR/USD to test the 1.1680 support zone.

Thursday also brings the Eurozone's first look at Q1 GDP alongside April HICP inflation, the last figures before the ECB meeting that day. Those two data points together are likely to signal the market whether the stagflation risk is baked in as mild or deepening.

The EUR/GBP pair at 0.8662 reflects a broadly balanced picture. Both currencies face central bank risk this week. A hawkish BoE relative to the ECB would drive EUR/GBP lower toward 0.8620. An ECB that surprises with a hawkish tilt would push it back toward 0.8700.

Euro pricing reflects a mix of soft consumer signals and firm policy expectations. Volatility in the EUR/USD pair typically increases ahead of ECB policy shifts.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1780 and Support sits at 1.1680

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USD: Dollar Steadies on Peace-Deal Hopes

DXY: 98.48

The dollar index (DXY) trades near 98.48, steadier after weeks of whipsaw moves tied almost entirely to Middle East news flow headlines. The dollar drew safe-haven flows when the US-Israeli strikes on Iran erupted on 28th February. It shed those gains through April as peace-deal optimism built. Now it has settled into what appears to be a holding pattern as peace talks stall.

Iran's new proposal to the US, flagged as reopening the Strait of Hormuz and ending the war, with nuclear negotiations pushed to a later stage, was enough to briefly dent the dollar’s safe-haven demand. But with President Trump cancelling his envoys' trip to Islamabad over the weekend and saying Iran could reach out if it wanted to negotiate, the path to a deal is unclear. A ceasefire without an underlying agreement is a ceasefire that can break.

The Federal Reserve (Fed) is expected to keep interest rates unchanged on Wednesday. This is widely expected to be Jerome Powell's final meeting as the Fed chair. What the statement and press conference do to the front end of the curve is the real variable. Inflation is elevated on the energy front; growth is under pressure. Powell is unlikely to lean towards a rate cut, but any hint of concern about the economic outlook could weaken the dollar's structural bid.

Brent Crude traded up 1.2% on Monday at $106.70 a barrel. WTI sat at $95.53. With Hormuz shut and no resolution in sight, the longer the disruption runs, the more analysts believe the mild stagflation scenario will graduate into something more severe - echoing the 1970s supply shock comparison that is beginning to surface in market commentaries, too. The clock is ticking.

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Other Currencies: AI Optimism Meets Oil Risk

AUDUSD 0.7164 | NZDUSD 0.5883 | USDJPY 159.16 | GBPJPY 215.64

Artificial intelligence (AI) supply chain stocks drove markets in Japan, South Korea, and Taiwan to record highs on Monday. Intel's unexpectedly strong revenue forecast triggered a wave of buying that pulled chip stocks across the region sharply higher. AUD/USD firmed to 0.7164, supported by risk appetite; NZD/USD held near 0.5883.

The Bank of Japan (BoJ) is expected to hold rates on Tuesday. The yen has been pinned in the 157-159 range since early March, caught between two forces. On one side, the energy shock is inflationary for an energy-import-dependent economy, which could push the BoJ toward further tightening. On the other hand, the same shock depresses growth. Market consensus is that the bank could stress its resolve to keep raising rates. While the BoJ is expected to hold on Tuesday, it also signals readiness to hike as early as June. The USD/JPY pair is currently estimated near 158.50, with 160 acting as a psychological ceiling that the market keeps testing.

The Bank of Canada (BoC) also holds its monetary policy meeting on Wednesday. With the loonie sensitive to both oil prices and the US economic outlook, CAD traders are focused on signals from the Fed and the Hormuz news flow for direction.

Australia's CPI for March drops on Wednesday, a pivotal print for the AUD/USD pair, which has benefited from improved risk sentiment but faces headwinds if domestic inflation surprises to the upside and forces a more hawkish RBA response.

We see a global market trend that is split between tech-driven optimism and energy-driven fear. The AI boom supports the pound and the Aussie dollar. The Middle East war supports the dollar and oil. This tension is creating the volatility we see today. Stagflation risks are growing, yet the central banks cannot tighten forever without breaking the economy.

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Current Rate Table:

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Market Lookahead

Tue, 28 April

• BoJ Interest Rate Decision
• US Consumer Confidence (Apr)
• ECB President Lagarde Speech

Wed, 29 April

• Australia CPI (Mar)
• Eurozone Consumer Confidence (Apr)
• BoC Interest Rate Decision
• Fed Interest Rate Decision

Thu, 30 April

• Eurozone HICP and Core HICP (Apr) and Q1 GDP
• BoE Bank Rate decision
• ECB Rate on deposit facility
• US CPI and Q1 GDP

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