The Daily Brief

Sterling's recovery in yesterday's session was striking in both pace and significance. The pound rose to $1.3570, its highest level since 26 February, the day before the war began, completing a seven-session winning streak that has effectively eliminated the conflict premium from GBP/USD. The move was driven less by domestic strength than by a broad dollar retreat, as deal speculation, however fragile, pulled capital away from safe havens and back towards risk. Beneath the surface, the UK's domestic picture remains complicated.

The February CPI print, released last month at 3.0%, is already stale in a world where Brent has averaged above $95 for three consecutive weeks. March PMI data showed business activity at a six-month low, with manufacturers reporting the steepest input cost acceleration since 1992. These are early signals that the energy shock is beginning to filter through to the real economy, compressing margins and dampening confidence before the Bank of England has even had to act.

Rate expectations continue to oscillate violently. Markets are pricing roughly a 67% probability of a BoE hike at the 30 April meeting, with at least two increases expected by year end. Before the war, the same markets were positioned for two cuts. Governor Bailey, who is scheduled to speak this week, faces the unenviable task of balancing inflation credibility against a weakening growth trajectory. The BoE's own staff projections suggest CPI could reach 3.5% in the coming quarters, which leaves little room for dovish signalling even if economic data deteriorates further.

The sterling-euro cross tells a more cautious story. GBP/EUR has struggled to push above 1.1440, suggesting that against the currency bloc most directly exposed to the same energy shock, the pound lacks a clear advantage. CIBC expects the cross to drift back towards 0.8742 on the euro side, reflecting the UK's sensitivity to prolonged energy disruption.

For clients managing sterling-denominated flows, the pound's return to pre-war levels against the dollar creates a window that could close quickly if the Hormuz situation deteriorates again. The ceasefire expires next week, and the gap between headline optimism and operational reality in the strait remains wide. Securing rates at current levels, rather than waiting for clarity that may not arrive cleanly, warrants serious consideration.

The Dollar Index sits at 98.44 this morning, giving back ground for the second consecutive session as risk appetite recovers and the greenback's safe-haven premium compresses. The index is now down roughly 2% from its war-era peak, yet remains elevated relative to where it traded in January, a reminder that while deal optimism can sap demand for the dollar, the structural advantages of the US as a net energy exporter have not disappeared. Yesterday's IMF World Economic Outlook reframed the macro conversation.

The Fund cut its 2026 global growth forecast to 3.1%, down 0.2 percentage points from January, but the headline number understates the risk. Chief Economist Pierre-Olivier Gourinchas conceded within minutes of the release that the economy is already drifting closer to the adverse scenario, which sees growth falling to 2.5% with oil at $100, or to 2.0% under severe conditions with oil averaging $110. The US took the smallest growth hit among major economies, shaved to 2.3%, reinforcing the relative resilience that underpins dollar demand.

The Fed remains anchored in wait-and-see mode. The March meeting produced a unanimous hold at the current range, with the median dot plot still pointing to one cut in 2026. But futures tell a more nuanced story: the probability of a December hike has receded to around 10%, down from nearly 16% a week ago, while the chance of a hold has climbed to 71%. Markets are settling into the view that the Fed will neither cut nor hike this year, an outcome that leaves the dollar supported but without a fresh catalyst to push materially higher.

The US naval blockade of Iranian ports, effective since 13 April, adds a new variable. CENTCOM has clarified that non-Iranian traffic will pass freely, but the operational distinction between blockading Iran and restricting broader strait access is thin enough to keep energy markets nervous. The blockade also represents a further escalation that complicates any return to negotiations, even as both sides signal some willingness to talk.

Dollar strength from here likely depends on which IMF scenario proves closest to reality. If the strait reopens meaningfully in the coming weeks, the greenback's energy premium fades and the DXY could drift towards 97. If the blockade hardens and oil resumes its climb, the dollar reasserts itself as the only major currency backed by domestic energy surplus. For clients with dollar payables, the current softness may represent a narrowing window rather than a new trend.

The rand edged below 16.40 per dollar in yesterday's session, its firmest level in over a week, as the combination of a softer greenback, retreating oil prices, and renewed deal hopes gave risk-sensitive currencies breathing room. The move pares losses from a turbulent fortnight: the rand touched 16.90 on 7 April before rallying sharply on the ceasefire announcement, only to give back ground when the Islamabad talks collapsed last weekend. South Africa's vulnerability as a net energy importer remains the dominant factor shaping the rand's trajectory.

Every sustained $10 increase in Brent raises the fuel import bill, widens the current account deficit, and feeds through to consumer inflation with a lag of roughly two quarters. The IMF's revised outlook compounds the risk: emerging markets face a 0.3 percentage point growth downgrade this year, with commodity-importing nations bearing the heaviest burden. Sub-Saharan Africa's growth forecast was cut to 4.3%, and South Africa's position as an oil importer with limited fiscal buffers makes it acutely exposed.

The SARB held rates at 6.75% in March, citing the war as a material upside risk to its inflation outlook and effectively closing the door on cuts until energy prices stabilise. Before the conflict, the easing cycle had been well signalled, with markets positioned for at least two further reductions. That expectation has been completely reversed. The question now is whether the SARB will need to hike, a scenario that depends largely on whether oil stays above $90 long enough to push CPI meaningfully above the 3% target midpoint. February inflation printed at precisely 3.0%, but this predates the full impact of the energy shock.

There are structural supports that prevent the rand from falling into freefall. The S&P credit upgrade to BB in November 2025, the first in nearly two decades, continues to anchor portfolio inflows. Gold, despite its 10% decline since the war began, still trades near $4,760, supporting mining revenues and the terms of trade. The JSE Top-40 gained 0.69% yesterday, with financials and resource stocks both contributing. Load-shedding, which crippled sentiment for years, has receded significantly in 2026, removing a persistent drag on confidence.

For clients with rand exposure, the currency's sensitivity to oil makes it an effective barometer of geopolitical risk. The move below 16.40 offers more favourable conversion levels than anything available in the past month, but the ceasefire's expiry next week introduces binary risk. Businesses converting or remitting through this window should weigh the cost of inaction against the possibility that the next headline sends USD/ZAR back towards 17.00.

Brent crude is trading at $94.99 this morning, down sharply from Monday's close near $99, as reports that Iran may consider a short-term pause in Hormuz shipments revived hopes for a diplomatic pathway. WTI has fallen below $91. The drop is significant but should be read in context: Brent remains roughly 40% above its pre-war level, and the IEA has warned that the conflict could erase global oil demand growth entirely in 2026, producing the first annual decline since the pandemic.

Equities are telling a remarkable story of resilience. The S&P 500 rose 1.18% on Tuesday to 6,967, erasing every point lost since the war began on 28 February. The Nasdaq jumped nearly 2%, led by technology names that have become increasingly disconnected from the energy shock narrative. Morgan Stanley's Mike Wilson argued that the market's lows are in, pointing to rotation back into pro-cyclical sectors as evidence that investors expect a constructive resolution in the second half of the year. That is a bold call given that the IMF, on the same day, warned the global economy could tip into recession under its severe scenario.

The divergence between equity optimism and fixed-income caution is worth watching. Ten-year US Treasury yields sit around 4.34%, well above their pre-war level, reflecting persistent inflation expectations. The ECB is preparing for its 30 April meeting with President Lagarde having explicitly opened the door to rate hikes if the energy shock proves durable. Markets price two full ECB hikes by year end, a scenario that would have been unthinkable in January when the deposit rate was expected to stay at 2.0% through 2026. The Bank of Japan remains poised for its own tightening, with the yen hovering near 159 per dollar.

Gold climbed to $4,760 on Tuesday, recovering from Monday's dip towards $4,700, as the dollar's retreat lowered the opportunity cost of holding non-yielding assets. The metal remains roughly 10% below its pre-war peak, an unusual outcome for a safe-haven asset during a major geopolitical crisis, explained by the aggressive repricing of global rate expectations. Higher rates everywhere make gold less attractive, and liquidations to cover losses elsewhere have compounded the selling. The rebound this week suggests that dynamic may be shifting as rate hike expectations begin to stabilise.

The week ahead hinges on the ceasefire's durability and whether the US blockade prompts escalation or concession. The IMF's spring meetings in Washington will keep the macro risks in sharp focus, while the ECB and BoE rate decisions on 30 April loom as the next policy catalysts. For businesses navigating global supply chains, the oil price remains the single most consequential variable, not just for direct costs, but for the secondary effects on freight, fertiliser, and the interest rate environment that determines the cost of financing international trade.