The Daily Brief

Sterling paused for breath in Wednesday's session after seven consecutive days of gains, its longest unbroken run since April 2025, slipping fractionally to $1.357 as a broad improvement in risk sentiment ironically lifted the dollar just enough to interrupt the rally. Against the euro, the pound held steady at 86.94 pence, preserving a near 1% advantage accumulated since the start of the conflict. This morning, cable is nudging higher again at $1.3575, within touching distance of pre-war levels.

The surface strength, however, masks a structural vulnerability that the IMF laid bare on Tuesday. Britain received the sharpest growth downgrade of any G7 nation, with 2026 GDP forecasts cut from 1.3% to 0.8%, a direct consequence of the UK's acute dependence on imported natural gas. That dependency has turned British two-year gilts into the worst-performing sovereign paper among major economies since the war began, with yields climbing nearly 70 basis points to 4.2% as traders scrambled to price Bank of England hikes rather than the cuts they expected just weeks ago.

The BoE rate trajectory has undergone a remarkable inversion. Markets now price roughly two quarter-point hikes by year end, down from a peak of four earlier in the month but a world away from the two cuts expected before the conflict. Megan Greene, one of the MPC's more hawkish voices, warned on Tuesday that waiting for definitive data on second-round inflation effects would mean acting too late, and that upside risks to inflation remain paramount in her assessment. That language leaves the door open for April action, particularly given Tuesday's flash PMI showing business activity at a six-month low and manufacturers' input costs accelerating at the fastest monthly pace since 1992.

The tension for sterling is that the factors supporting it near term and the factors threatening it medium term are pulling in opposite directions. Ceasefire optimism supports the pound against the dollar today, but rate differentials are moving in the euro's favour once geopolitical noise fades. Analysts at ING have pointed to front-end rates having further to fall in the UK than in the euro zone, a dynamic that should offer lasting support to EUR/GBP beyond the current risk rally.

For businesses with scheduled GBP payments or conversions, the current range represents a meaningful recovery from March's four-month lows. The risk is that this window closes as attention shifts from ceasefire headlines back to the growth and inflation reality already embedded in the data. Locking in rates at these levels, rather than betting on further appreciation, is the more defensible position while the BoE's next move remains genuinely uncertain.

The Dollar Index has broken below the key 98 level this morning, sitting at 97.97 after nine consecutive sessions of decline that have stripped away nearly all the war-driven gains accumulated since late February. The greenback is down 0.7% for the week and on course for its second straight weekly loss as traders dismantle safe-haven positions. Reports that the U.S. and Iran have reached an in-principle agreement to extend the ceasefire, combined with Tehran's signalling that ships could transit the Omani side of the Strait of Hormuz, have accelerated the unwind.

Yet a separate and potentially more consequential risk has sharpened overnight. President Trump told Fox Business on Wednesday that he would fire Fed Chair Jerome Powell if Powell does not vacate his board seat when his term as chair expires on 15 May. The confrontation has become entangled with a criminal investigation into the Fed's headquarters renovation, with prosecutors from the D.C. U.S. Attorney's office turned away from the Fed building on Tuesday, and a key Republican senator blocking Kevin Warsh's confirmation until the probe concludes. The Warsh confirmation hearing is scheduled for 21 April, but the path forward is deeply uncertain, and the standoff has introduced a political risk premium into dollar assets that exists independently of the geopolitical cycle.

Rate expectations have continued to normalise. Fed funds futures now imply a 70% probability of no change through December, with the brief hike premium that built during the war's peak largely evaporated. Just a week ago, markets were pricing a 15% chance of a rate hike by year end; that has all but disappeared. The market's base case is firmly a prolonged hold, which removes one potential source of dollar support and aligns with Chair Powell's stated preference for patience in the face of two-sided risks to the Fed's mandate.

Offshore, the yuan has quietly become the strongest-performing currency since the conflict began, appreciating 2.6% against the dollar this year on the back of surging Chinese exports and active conversion of dollar holdings. China's first-quarter GDP printed at 5.0%, beating expectations. The Australian dollar has pushed to a four-year high above $0.719, and the yen has firmed to 158.38 after Japan's finance minister confirmed that Tokyo and Washington have agreed to intensify communication on exchange rates, a signal that further yen weakness will not be tolerated.

For dollar-denominated treasury operations, the break below DXY 98 is technically significant and could open further downside if the ceasefire narrative holds. Hedging costs that spiked during the conflict are normalising, and the combination of a weakening dollar with stable Fed policy offers a more favourable environment for locking in forward rates. Importers who were caught offside by the March surge are being given a second opportunity, though it would be unwise to assume the dollar's retreat will continue unchecked if the Fed independence question escalates or the ceasefire falters.

The rand traded at 16.365 against the dollar in Wednesday's session, edging 0.2% weaker in a quiet day despite a broadly supportive risk backdrop. The currency has recovered substantially from the 17.23 peak hit at the end of March, clawing back nearly 5% as ceasefire expectations and falling oil prices lifted emerging-market sentiment. This morning, the pair has firmed further to 16.3265, testing the lower end of a range that has consolidated since the initial ceasefire rally.

The mood among local treasury desks has shifted perceptibly. Market participants describe a quietly positive posture, with the prospect of a second round of U.S.-Iran talks in Pakistan giving operators reason to trim defensive positions. The benchmark 2035 government bond reflected that cautious optimism, with the yield falling a further basis point to 8.405% on Wednesday, extending a steady improvement from the 9.22% peak during the worst of the sell-off. Foreign flows into local bonds have tentatively resumed.

Yet the domestic cost picture is more punishing than the rand's recovery suggests. April arrived with a triple price shock for South African consumers and businesses: fuel prices surging on the Iran war premium, with inland 95 unleaded climbing to approximately R25 per litre; an 8.76% electricity tariff hike effective 1 April; and a carbon levy increase layered on top. The SARB held the repo rate at 6.75% in March and made clear that easing remains off the table until the energy picture clarifies materially. With Brent still well above pre-war levels, the pass-through into transport costs, food prices, and broader inflation remains a live concern for the second quarter and will weigh on the rate-cut timeline that investors had expected to begin this year.

The diplomatic backdrop is also more complicated than the headline ceasefire optimism suggests. The U.S. reportedly declined to accredit South Africa's delegation for the G20 finance meetings in Washington this week, a fresh reminder that the bilateral relationship between Pretoria and Washington remains strained. AGOA continues at the 10% baseline tariff following Trump's 90-day pause, but the structural trade relationship sits on uncertain ground. These are not immediate rand-movers, but they shape the medium-term risk premium that foreign investors demand to hold South African assets.

For rand-denominated payments and conversions, the current range around 16.30 to 16.50 is materially better than the levels available even a fortnight ago. The asymmetry remains: further ceasefire progress could see 16.00 tested relatively quickly, but any collapse in talks would send the currency back toward 17.00 with little resistance in between. Structuring forward cover rather than relying on spot timing is the approach that protects against the downside without forfeiting the possibility of further improvement.

Risk appetite is broadening this morning as earnings strength and ceasefire diplomacy converge. MSCI's Asia-Pacific benchmark is up 0.9%, marking a third consecutive day of gains, while Japan's Nikkei has pushed to a fresh record on a 2.2% advance. S&P 500 futures point modestly higher after Wall Street closed at record levels on Wednesday, carried by a 1.6% Nasdaq surge on the back of strong bank earnings. Early in the reporting season, 84% of companies have beaten expectations, and the market's focus is rotating from macro fear back toward fundamentals.

Brent crude has dropped sharply to $92.11 this morning, sliding well below the $95 level that held during the overnight Asia session, after reports emerged that the U.S. and Iran have reached an in-principle agreement to extend the ceasefire. Tehran has also signalled willingness to allow passage through the Omani side of the Strait. The move below $93 represents a near 20% retreat from the $112 panic highs of late March and brings oil within range of levels that began to ease the most acute inflationary pressure. The EIA's latest outlook forecasts Brent peaking at $115 in Q2 before falling to $88 by Q4, assuming the conflict does not persist beyond April, while the IEA has warned that the disruption could produce the first annual decline in global oil demand since the pandemic.

The day's marquee event is TSMC's full Q1 earnings call this afternoon. The chipmaker has already pre-announced record quarterly revenue of $35.7 billion, a 35% year-on-year surge driven by insatiable AI chip demand, with March alone posting the strongest single-month growth in the company's history. Analysts expect a 55% jump in earnings per share. The significance extends beyond one stock: TSMC fabricates roughly nine in ten of the world's most advanced chips, and its results serve as a litmus test for whether AI-driven capital spending is genuinely insulated from the energy shock. Q2 guidance and any commentary on the $52 to $56 billion capex plan will set the tone for technology valuations globally.

Gold has clawed back to $4,819 after a brutal month that saw the metal shed 14%, its steepest decline since October 2008. The sell-off reflected a regime shift: rising rate expectations globally made holding gold expensive, and profit-taking after a prolonged rally accelerated the decline. China's first-quarter GDP beat at 5.0% added to the constructive backdrop, though cooling retail sales and the IEA's demand warning tempered enthusiasm. Credit markets are stabilising, with the most extreme rate-hike scenarios being pared back across Europe and the UK.

The broader picture is one of cautious normalisation. Volatility is receding, the most aggressive monetary tightening bets are being unwound, and equities are finding support from earnings rather than just hope. For businesses exposed to commodity costs, freight rates, and cross-border capital flows, this is a window to reassess forward cover and recalibrate the assumptions that were stress-tested to extremes only weeks ago. Brent at $92 is still roughly 40% above pre-war levels, and the structural damage to energy infrastructure means supply recovery will be gradual even in the best-case scenario. The tail risks are fading, but the new baseline is higher than where we started.