A light data calendar for the week just gone meant that just a Middle East tensions and central bank speak were expected to be front and centre for FX markets. That dynamic also meant plenty of quiet periods for price action too. Ratesetters have, at this point, little to add that traders have not already heard ahead of the next round of policy meetings. US-Iran negotiations, meanwhile, seemed to be in limbo for much of the week, with markets left trading on speculation and rumours. Even so, a lack of renewed escalation helped to maintain downside pressure on energy prices, and on the dollar in turn. That dynamic was compounded ahead of the weekend, with Friday seeing a volley of social media messaging from both parties, suggesting that the Strait of Hormuz could reopen imminently.

Assuming no final negotiated agreement over the weekend, then this trend looks likely to persist in the week ahead, with geopolitical developments continuing to dictate dollar direction. That said, the week also sees a fuller roster of data releases for traders to keep an eye on. March CPI reports from Canada, the UK, and Japan will be top of mind, as will flash April PMIs. The key question for traders and policymakers alike will concern the extent to which higher energy costs are leading to broader price rises. We have seen little evidence of this as yet, leaving us more dovish than consensus, especially when it comes to European rates. Still, confirmation would help to curtail recent gains for both the euro and sterling, with the latter also at risk in light of renewed domestic political uncertainty.

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Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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