The Daily Brief

Sterling closed Wednesday's session around $1.340, consolidating gains after a sharp rally that had carried it nearly 1% higher following the ceasefire announcement. The pound had been one of the more volatile G10 currencies during the conflict, whipsawed between safe-haven dollar demand and shifting Bank of England rate expectations that had, at one point, priced in four hikes by year-end. The ceasefire materially altered that calculus, with rate expectations cooling from two hikes to roughly one increase for 2026 — though that remains a dramatic reversal from the two cuts markets had anticipated before the war began.

The Bank of England's position has been defined by a single word throughout this crisis: readiness. The unanimous 9-0 hold in March, coupled with language about being "ready to act," left the door wide open in both directions — and the ceasefire has allowed the MPC to step back from the brink of forced tightening. February CPI held at 3.0%, a reading that now feels like a relic of pre-conflict conditions. Preliminary staff forecasts from the March meeting had warned inflation could reach 3.5% over coming quarters, driven almost entirely by energy pass-through into fuel, utilities, and transport costs.

The early economic signals from the conflict are not encouraging. Tuesday's PMI data showed British business activity growing at its slowest pace in six months, with manufacturers' input costs posting their sharpest monthly acceleration since 1992. These are the first-round effects — the question that will determine sterling's trajectory through the spring is whether second-round effects take hold: whether higher energy costs feed into wage settlements, pricing behaviour, and inflation expectations that become embedded. The BoE's Agents' pay survey already revised expected 2026 settlements upward to 3.6%, a figure that was rising before the conflict even started.

The next decision point is the 30 April MPC meeting, which carries a full Monetary Policy Report. Around 90% of economists polled expect a hold at 3.75%, though a handful anticipate a 25 basis-point hike. Markets are pricing roughly a two-thirds probability of a hike at that meeting, a number that had been significantly higher before the ceasefire eased the immediate inflation pressure. Berenberg's assessment that sluggish growth and rising labour market slack should prevent a new price-wage spiral offers some comfort, but it relies on the conflict remaining contained — a condition that was being tested within hours of the truce taking effect.

For businesses managing GBP exposures, the ceasefire has created a window where sterling's upside is capped by the lingering inflation threat and its downside cushioned by the removal of the most extreme scenario — an open-ended energy shock. That window may prove brief. The pound's sensitivity to oil prices, rate expectations, and headline risk simultaneously makes it one of the more complex currencies to manage right now, and the spread between where rates could end the year under a resolution scenario versus a prolonged conflict scenario remains unusually wide.

The Dollar Index sits at 99.03 this morning, clawing back above the 99 handle after plunging to a four-week low on Wednesday when the ceasefire news unwound weeks of safe-haven positioning in a matter of hours. Bloomberg's dollar gauge shed nearly 1% at its session low — its sharpest single-day decline since the conflict began — as the greenback gave back more than half its war-driven gains against risk-sensitive currencies including the rand, Swedish krona, and Australian dollar.

The recovery overnight reflects the uncomfortable reality that the ceasefire is, in the words of the Vice President, "fragile." Iran's Revolutionary Guards claimed shipping through the Strait of Hormuz had halted following what Tehran called an Israeli ceasefire violation in Lebanon. Only two vessels — both bulk carriers, not oil tankers — transited the strait in the hours after the agreement took effect, against a pre-war daily average of 100 to 120. The White House insists the strait is open; the shipping industry disagrees. It could take weeks before even half of normal traffic resumes, according to energy analysts, and the structural damage to regional energy infrastructure will outlast any diplomatic agreement.

The FOMC minutes from the March 17-18 meeting, released Wednesday afternoon, added a hawkish undertow to what had been a risk-on session. The minutes revealed that policymakers had actively discussed the conditions under which rate hikes might be necessary — a significant escalation in rhetoric. The vast majority judged that upside risks to inflation and downside risks to employment were simultaneously elevated, the precise configuration that makes policy decisions most difficult. Only Governor Miran dissented, preferring a cut. The modal policy path implied by options markets had shifted to no rate change at all in 2026, up from one cut previously, with around a 30% probability of a hike through early next year.

The ceasefire meaningfully alters that calculus. Fed funds futures this morning imply roughly a 71% probability that the Fed holds through December, with the chance of a hike trimmed and the possibility of a late-year cut re-emerging. But US inflation data landing this week — the PCE deflator today and March CPI on Friday — will determine whether the relief rally in rates has legs. If the data shows energy costs already feeding through into core measures, the hike tail risk returns quickly. The Fed's own projections, released in March, had already lifted the 2026 core PCE forecast to 2.7% from 2.5%, and that was before the worst of the oil spike.

The dollar's path from here is bifurcated. If the ceasefire holds and the Strait reopens meaningfully, the safe-haven premium unwinds, yields come down, and the greenback drifts lower — most institutional forecasts place DXY in the low-to-mid 90s by December under that scenario. If the truce collapses, the dollar reasserts itself as the only liquid store of safety in a world where the US remains a net energy exporter and every other major economy is a net importer. For firms with dollar-denominated obligations or receivables, that range of outcomes — a potential 5-7% swing in either direction from here — demands a hedging posture that accounts for both tails.

The rand surged to its strongest level in nearly a month in yesterday's session, firming roughly 3% to trade around 16.32 against the dollar by midday. The move was the mirror image of the punishment the currency had absorbed since the conflict began — down approximately 6% through March as rising oil prices and collapsing risk appetite exposed South Africa's structural vulnerability as a net energy importer with limited fiscal buffers. The benchmark 2035 government bond rallied sharply alongside the currency, with the yield falling more than 55 basis points to around 8.55%, unwinding much of the stress that had built since late February.

The Johannesburg Stock Exchange's Top-40 index closed more than 6% higher, one of the strongest single-day performances in recent years, led by resource counters and financials. The rally was broad-based, reflecting a genuine shift in risk appetite rather than sector rotation — a sign that the ceasefire, however fragile, was being treated as a material de-escalation by institutional investors. Gold, which had been liquidated during the conflict as investors met margin calls and rotated into dollars, rebounded modestly but remains well off its January highs.

The South African Reserve Bank held rates steady at 6.75% in March, as expected, but the language accompanying the decision made clear that the door to hikes remains open. Governor Kganyago told Reuters the bank would revise its risk scenarios at the next meeting, and MPC members flagged the risk that higher fuel costs — South Africa was facing its largest monthly petrol price increase in years — could push headline inflation well above the 4.5% target midpoint. The ceasefire eases that pressure, but doesn't eliminate it: Brent at $95 per barrel is still roughly 30% above pre-war levels, and the rand's recovery only partially offsets the ZAR-denominated fuel cost increase.

Domestically, the composite leading business cycle indicator rose 0.4% month-on-month in January, a modest expansion signal, but one that predated the conflict. The forward-looking picture is more challenging. Investec's chief economist cautioned that while the first quarter should show some growth momentum, the second quarter is likely to open with substantial fuel price increases that will weigh on retail, wholesale, and vehicle sales if the war persists. Producer inflation data, released alongside the rate decision last week, will have captured only the early stages of the energy shock — the full picture won't emerge until the April and May readings.

For clients with rand-denominated flows, yesterday's move was a reminder that the currency's beta to global risk sentiment is exceptionally high in the current environment. A 3% move in a single session cuts both ways. The gap between the ceasefire scenario — where USD/ZAR could drift back toward 16.00 or lower — and the re-escalation scenario, which could push the pair back through 17.00, represents a meaningful spread for anyone managing payables, receivables, or treasury exposure. The next two weeks, while negotiations proceed in Islamabad, will determine which leg of that trade prevails.

Brent crude is trading around $94.75 this morning, having settled 13.3% lower on Wednesday in its largest single-day decline since the pandemic-era demand collapse of April 2020. WTI fell further still, dropping as much as 19% before settling around $94. The scale of the move reflected the degree to which the oil market had been pricing in an indefinite closure of the Strait of Hormuz — and how rapidly that premium is unwound when even the faintest possibility of reopening emerges. The Brent-WTI spread, which had blown out to $25 per barrel at its widest in late March, compressed sharply, though it remains far above the $4 level where it started the year.

Equities responded with the kind of broad-based relief rally that confirms how deeply the conflict had been weighing on risk assets. The S&P 500 jumped 2.5%, the Dow surged over 1,300 points for its best session since April 2025, and the Nasdaq climbed 2.8% as AI and semiconductor names — beaten down by the broader risk-off — staged a sharp recovery. European markets had already posted their strongest sessions in months, with the DAX up more than 5% and the FTSE 100 gaining 2.4%. Asian markets followed suit overnight, with Tokyo up 5.4%, Seoul surging nearly 7%, and broader emerging market indices recovering sharply.

The bond market told a more nuanced story. US Treasury yields initially plunged on the ceasefire news as inflation expectations receded, but reversed course after the FOMC minutes revealed the depth of the hawkish debate within the Fed. The 10-year yield sits around 4.34% this morning, roughly where it was before the relief rally — a signal that the market isn't fully convinced the inflationary impulse from the energy shock is behind us. Two-year yields, more sensitive to near-term rate expectations, remain elevated relative to pre-war levels. The EIA's Short-Term Energy Outlook, released this week, forecast Brent peaking at $115 per barrel in the second quarter before easing — a projection that now looks too pessimistic on the upside scenario but entirely plausible if the ceasefire fails.

Gold is trading around $4,737 per ounce, recovering modestly after a bruising month in which the metal fell roughly 14% — its steepest monthly decline since October 2008 — as investors liquidated profitable positions to cover losses elsewhere and rotated into dollars. The ceasefire removes some of the pressure, but gold's behaviour during this crisis has defied its safe-haven narrative: in a world where every major central bank was pivoting toward hikes, the opportunity cost of holding non-yielding bullion rose faster than the geopolitical bid. If the ceasefire holds and rate expectations normalise, gold could recapture ground as the yield argument reverses.

The week ahead carries concentrated event risk. US personal spending and the PCE deflator are due today, with March CPI landing on Friday — the first readings that will capture the full force of the energy price transmission into the US consumer economy. ECB President Lagarde's recent comments opening the door to rate hikes in the eurozone remain live, and negotiations between the US and Iran are scheduled to begin in Islamabad on Saturday. For anyone with cross-border exposure spanning multiple currencies and commodities, the next seventy-two hours will determine whether the ceasefire represents a genuine inflection point or simply a pause before the next escalation — and the hedging decisions made now will define the cost of being wrong.