The Daily Brief

Sterling closed yesterday's session near $1.3400, drifting lower as the initial euphoria from the US-Iran ceasefire announcement gave way to a harder-edged reality. The pound had surged to a five-week high of $1.3485 on Wednesday when the truce was first declared, driven by a collapsing dollar and a sharp drop in oil. But Thursday brought a reversal: Iran accused the US of breaching three clauses of its 10-point proposal, Israel struck Lebanon in its largest coordinated operation since the war began, and the Strait of Hormuz remained effectively shut to most commercial traffic.

The rate expectations picture for sterling has been rewritten twice in six weeks — first by the war, then by the ceasefire. Before the conflict, markets were pricing two Bank of England cuts in 2026. By late March, that had flipped to two or three hikes as the energy shock sent UK manufacturers' input costs accelerating at the fastest pace since 1992. The ceasefire has now pulled expectations back toward a more moderate path, but the market still assigns roughly a two-in-three probability of a hike at the BoE's May meeting. BoE Deputy Governor Sarah Breeden warned yesterday that this energy shock differs structurally from 2022, with implications for both inflation and employment that will take time to assess fully.

February CPI held at 3.0%, but that reading predates the worst of the energy pass-through. The March and April prints — due over the coming weeks — will be the real test of how embedded price pressures have become. The BoE faces an uncomfortable asymmetry: if Brent stays above $95, the inflationary impulse persists regardless of the ceasefire; if it drops sharply on a genuine deal, the case for hikes collapses but the growth damage from five weeks of disruption lingers.

The pound's position against the euro was little changed at around 86.5 pence, reflecting the reality that both currencies face similar energy headwinds. ECB President Lagarde opened the door to euro-zone hikes last week, limiting any relative advantage for sterling from the BoE's hawkish tilt.

For businesses with sterling-denominated payables or receivables, the currency sits at an inflection point. If Islamabad talks falter and oil re-tests $110, sterling faces renewed pressure toward $1.32. If a durable deal materialises, the pound could recover toward $1.36 — but the rate path becomes more dovish, compressing forward points. Either way, optionality has rarely been more valuable than it is right now.

The Dollar Index sits near 98.87 this morning, on track for a decline of more than 1% this week — its sharpest weekly fall since the ceasefire euphoria swept through markets on Tuesday evening. The greenback's role as the default safe haven during six weeks of conflict is being partially unwound, but the move lower carries a note of caution rather than conviction. Traders are not abandoning the dollar; they are repositioning ahead of what could be the most consequential CPI release in over a year.

Consensus expects headline CPI to jump 0.9% month-on-month in March, lifting the annual rate to around 3.7% from 2.4% in February — a surge driven almost entirely by energy. Core CPI, stripped of food and energy, is forecast at a more contained 0.3% monthly rise. But the distinction between headline and core may matter less than usual this time: the FOMC minutes released on Wednesday revealed that several members see a strong case for acknowledging that their next move could be up, not down. The phrase "two-sided description" has entered the Fed's lexicon, and rate hike probabilities for early 2027 have risen to around 30%.

The Fed held rates at 3.50%–3.75% at its March meeting, with the dot plot still projecting one cut this year. But seven of 19 participants now see no cuts at all in 2026, and the inflation projection was revised upward to 2.7% on core PCE. Chair Powell has framed the energy shock as something the Fed will eventually need to decide whether to "look through" — language that buys time but leaves markets guessing. A hot CPI print today could accelerate the hawkish drift before Powell's term ends in May and Kevin Warsh takes the chair.

The geopolitical premium in the dollar has also shifted. While the US remains a net energy exporter and benefits structurally from higher oil prices, the ceasefire introduces the possibility that the energy advantage fades faster than the inflationary damage it caused. Treasury yields have pulled back from their March peaks — the 10-year sits near 4.34% — but remain elevated relative to pre-war levels, keeping dollar-denominated carry attractive for now.

Today's CPI will set the tone for the dollar into the May FOMC meeting. A print at or above consensus cements the hold-for-longer narrative and keeps the dollar bid on rate differentials. A softer-than-expected core reading, however, could reopen the door for one cut by December and send the DXY toward 98 — compressing the premium that has favoured dollar buyers over the past six weeks.

The rand slipped to around 16.45 against the dollar in yesterday's session, giving back a portion of Wednesday's near-3% rally — a swing that illustrated both the rand's extreme sensitivity to the oil price and the fragility of the ceasefire driving it. Wednesday's move, when Brent plunged more than 15% on the truce announcement, was the rand's strongest single-day performance since the conflict began. By Thursday, with Iran accusing the US of breaching terms and the Strait of Hormuz still effectively closed, caution had returned.

South Africa's structural exposure to this crisis is sharper than most emerging markets. As a net energy importer, the country faces a direct hit to its import bill from elevated oil prices, while the inflationary pass-through into fuel, transport, and food costs threatens to erode the hard-won progress on the SARB's new 3% inflation target. The Reserve Bank held rates at 6.75% at its March meeting, keeping the door open for hikes should energy-driven inflation intensify. Pre-war, markets had been expecting further easing; that prospect has all but vanished.

The ceasefire has provided temporary relief, but the underlying damage runs deeper than a single oil price swing. Analysts note that even in a benign scenario where the truce holds and Hormuz reopens, supply chain disruptions and infrastructure damage from six weeks of conflict mean elevated energy costs could persist well into the second half of 2026. Producer inflation data released last week already showed pressures building, and Q2 fuel price increases are now baked in regardless of the diplomatic outcome.

The rand has shed roughly 6% against the dollar since the conflict began in late February, outperforming some peers but underperforming its own pre-war trajectory. Gold, traditionally a rand support through South Africa's mining exports, has been volatile — trading near $4,700 after a sharp sell-off through March as investors liquidated winning positions to cover losses elsewhere. The JSE Top-40 rallied over 6% on the ceasefire day but remains cautious, with futures pointing to muted activity ahead of the CPI data.

For rand-exposed corporates, the lesson of the past six weeks is that the currency's "new normal" around R17.00/$ — anchored by improved fiscal discipline and SARB credibility — can be disrupted rapidly by external shocks. The R16.30–17.00 range that has defined the post-ceasefire band is narrower than the R16.80–17.25 corridor of March, but remains wide enough to create meaningful margin variation on cross-border flows. Hedging tenor decisions taken today carry an unusually high opportunity cost, given that Islamabad talks tomorrow could move the rand by a full percentage point in either direction.

Brent crude is trading near $96.50 this morning, having bounced back from Wednesday's plunge below $90 as doubts over the ceasefire's durability resurfaced. The pattern this week has been instructive: an initial 15% crash on the truce announcement, followed by a steady grind higher as the market digested the reality that the Strait of Hormuz has not meaningfully reopened. Abu Dhabi's oil chief was blunt yesterday: the strait "is not open" — access is being restricted, conditioned, and controlled by Iran. Only five vessels transited the waterway on Wednesday, against a pre-war average of 100–120 per day.

The oil curve tells a more nuanced story than spot prices alone. While the front end has pulled back from the $119 highs of late March, forward contracts remain elevated — September Brent was last near $94 — signalling that the market expects structural supply tightness to persist even if a deal is reached. The EIA's quarterly review confirmed that the Hormuz disruption was the largest in its dataset going back to 1988, and that the Brent-WTI spread peaked at $25 in March, the widest in over five years. US crude inventories rose 3.1 million barrels last week, offering some supply-side relief domestically, but global markets remain acutely exposed to any breakdown in negotiations.

Equities are treading water. The S&P 500 closed marginally lower yesterday at around 6,617 after initially rallying on ceasefire optimism, then reversing as oil prices ground higher. The VIX remains elevated near 26, reflecting persistent uncertainty. European indices also pared gains, with the DAX and FTSE 100 both losing ground late in the session. In Asia this morning, trading is cautious ahead of the CPI release and Islamabad talks.

Gold hovers near $4,700, caught between conflicting forces: a weaker dollar and declining real yields support it, but the risk-on rotation into equities following the ceasefire has capped upside. The metal is heading for a roughly 14% monthly decline — its steepest since October 2008 — after investors systematically sold gold through March to raise cash for margin calls and rebalancing. Central bank buying, particularly from China and Turkey, has provided a floor, but the traditional safe-haven trade has been complicated by the magnitude and speed of the interest rate repricing.

All eyes today turn to the March CPI at 8:30am Eastern, followed by Islamabad tomorrow, where Vice President Vance will lead a US delegation including Steve Witkoff and Jared Kushner. The sequencing matters: a hot inflation print today hardens the Fed's resolve and lifts yields, which strengthens the dollar and pressures risk assets — making a successful diplomatic outcome in Pakistan even more important for market stability. For internationally exposed businesses, the intersection of ceasefire uncertainty and the most significant US inflation data in months creates a window where rate exposure, commodity risk, and currency positioning all demand active attention.