The Daily Brief

Sterling pushed higher in yesterday's session after a significantly stronger-than-expected UK growth print, trading last at $1.3575 and up roughly 0.1% on the day. Against the euro, the pound firmed to 86.94 pence. February GDP rose 0.5% month-on-month, the biggest monthly expansion since January 2024 and more than double the 0.2% consensus, with broad-based services strength and a pickup in vehicle production doing the heavy lifting. Cable now sits higher than it did immediately before the Iran war began.

The underlying story is more measured than the headline. Capital Economics has already cautioned that the February strength is probably the high-water mark, with energy-driven cost pressures likely to throttle growth back to a crawl over the coming quarters, and expectations for full-year 2026 real GDP have been pared back to around 0.7%. ING and others are treating the seasonal adjustment with scepticism, noting a pattern of early-year overstatement in recent ONS releases. None of which changes the near-term pound-positive read, but it caps how much upside the currency can extract from a single data point.

The Bank of England's hand is now steadier than markets briefly thought. Governor Bailey told the BBC this week that the MPC would not rush to judgement on rate moves, and market pricing has settled on one to two hikes by year-end against the four briefly priced at the March peak. This still represents a remarkable inversion from the two cuts expected before the conflict, and it is the rate-path differential relative to the Fed that continues to lend sterling a structural bid. The 30 April MPC meeting is the next real test.

For corporates with sterling receivables, the rally through $1.35 has been generous, but it now rests on three assumptions holding simultaneously: a durable US-Iran framework, no UK growth downgrade when April PMIs land, and a Bank that keeps the hike option visibly on the table. Any one of those softening would open the door to a rapid retracement. Hedging cover taken at March lows is already paying; complacency about defending current spot levels is the risk we would flag to clients into month-end.

The Dollar Index sits at 98.24 this morning, heading for a second consecutive weekly loss and holding near its lowest levels since 2 March, the first full trading day after the war began. The greenback has now surrendered essentially the entire war premium, with the index having declined for eight straight sessions through midweek before stabilising. Against the euro it trades at 1.1783, against the yen at 159.40, with sterling near 1.3526 and the Australian dollar hovering around four-year highs above 71 US cents.

This is a safe-haven unwind, not a vote of no confidence. The ten-day Lebanon-Israel ceasefire has removed a live regional escalation, and Washington's pivot from pursuing a comprehensive Iran deal to a temporary memorandum of understanding signals a pragmatic focus on preventing reversion rather than resolving every underlying issue. Trump has confirmed a potential weekend meeting with Iranian counterparts. The dollar is giving back the crisis bid because the crisis pricing no longer fits the headlines, not because US fundamentals have weakened.

The Fed has been handed the cover it wanted. Weekly initial jobless claims fell more than expected, giving policymakers room to hold while the inflation pass-through from energy plays out. Fed funds futures continue to price a full-year hold, with markets now treating the next move as likely a cut, albeit a distant one. ANZ's framing captured the consensus neatly this week, noting that hiking into a negative supply shock cannot compensate for energy-driven inflation and risks compounding growth headwinds. The 30 April FOMC meeting is expected to ratify that posture.

Treasury yields tell a more nuanced story. The two-year yield sits at 3.78% and the 10-year at 4.31%, both steady but elevated. Still-sticky oil keeps the inflation tail live, even as equity markets celebrate. G7 finance ministers this week committed to standing ready to act on the energy shock, and the ECB has pushed back against premature rate-hike talk, arguing for more data before moving. This is the collective language of central banks who know the current market relief may not survive the next bad weekend.

For clients with dollar payables, the window has been favourable and may extend modestly if the weekend produces constructive signals, but dollar weakness from here is conditional on a ceasefire that holds and a Strait that reopens. Dollar receivables that were comfortable three weeks ago now look meaningfully less so. This is a point in the cycle where hedging discipline matters more than directional conviction, because the scenarios either side of the weekend are asymmetric in a way that straight-line positioning tends to underestimate.

The rand closed yesterday's session at 16.3350 against the dollar, roughly 0.3% firmer on the day and at its strongest level in around six weeks. The move reflects the broader dollar retreat to six-week lows, a firmer gold price on ceasefire hopes, and sustained demand for risk-sensitive EM currencies now that the March safe-haven panic has drained away. Against sterling and the euro the rand is broadly steady, with most of the bilateral action coming through the dollar leg.

The domestic operating picture is less benign than spot would suggest. The Minerals Council of South Africa warned this week that average monthly fuel bills for miners, typically around R2.9 billion, are expected to surge to roughly R4.3 billion in April and remain elevated for as long as Hormuz disruption persists. That is a 48% jump in a line item that goes directly to operating margin in the sector that drives a disproportionate share of export earnings and tax receipts. The headline rand rally is real; the underlying terms of trade for mining are materially worse than they were six weeks ago.

SARB's 26 March hold at 6.75% now looks well-calibrated, and the Bank's projection of Q2 fuel inflation above 18% is being stress-tested in real time. FRA pricing has moderated sharply from peak-fear levels, reflecting markets' expectation that the war-induced inflation impulse will fade if the ceasefire holds. Societe Generale this week made a case for USD/ZAR grinding toward 16.00, citing the failure to sustain above the 200-day moving average at 17.00. That is a cleaner technical story than a fundamental one, and it cuts both ways if the weekend disappoints.

Local bonds tell a constructive story, with the 2035 benchmark yield at 8.405%, comfortably tighter than the 9-plus levels seen at the March peak. South Africa's structural position has quietly improved through the noise, with the November S&P upgrade to BB still anchoring sentiment and firmer precious-metal prices supporting the trade balance. The challenge for clients is that rand strength has come faster than the domestic fundamentals warrant, which makes current levels a gift rather than a trend.

For businesses with foreign-currency receivables, the recent window has been favourable, and clients who extended cover when USD/ZAR sat above 17 have been vindicated. For those now looking to convert for Q2 obligations, the calculus is harder: the market has effectively priced out the war-inflation premium without confirmation that the peace is structural. The 28 May MPC meeting is the next formal marker; the weekend's US-Iran headlines will drive the path there.

Brent sits at $98.14 a barrel this morning, down more than 1% on the day and comfortably below the $100 psychological line that dominated March trading. WTI trades at $93.15, down 1.6%. The Strait of Hormuz remains formally closed, but the market is pricing the weekend meeting between US and Iranian negotiators as the likely inflection point. The forward curve still reflects caution, with longer-dated contracts implying that traders are not yet willing to commit to structural normalisation until shipping actually resumes.

Equity markets have taken the benign scenario to its conclusion and then some. The S&P 500 and Nasdaq both printed record closes for a second straight session on Thursday, Japan's Nikkei hit an all-time high before slipping 1% overnight, and MSCI's Asia-Pacific ex-Japan index is up 14.5% in April after dropping 13.5% in March. Almost every major index is now back at or above pre-war levels. M&G's Andrew Chorlton summed up the institutional unease this week, noting the sharp contrast between what central bankers are warning about and what markets are implying, and calling current pricing "somewhat complacent".

The institutional warnings are stacking up. The IMF has downgraded its global growth outlook and flagged recession risk if the conflict extends. G7 finance ministers have publicly committed to coordinated action on energy-driven inflation and supply risks. ECB officials have pushed back against near-term rate-hike speculation, arguing for more data before moving. Goldman Sachs continues to model scenarios in which another month of Hormuz closure keeps Brent averaging above $100 for 2026. None of this has dented equity enthusiasm, but the gap between policy caution and market pricing is now unusually wide.

Bond markets occupy the middle ground. The US 10-year yield sits at 4.31%, elevated but well off March peaks. European yields have moderated similarly. Gold holds near $4,800 an ounce and is on track for a fourth consecutive weekly advance, a reminder that even as equities celebrate, the hedging bid has not gone away. The VIX sits just below 18, well down from the mid-30s at the March crescendo. Positioning is broadly risk-on, with the implied downside cost materially higher than it was three weeks ago.

The weekend now carries outsized weight. A constructive US-Iran meeting with tangible progress on Hormuz reopens a path toward durable peace-deal pricing and would likely extend the April rally into May. A collapse in talks, or any fresh Iranian rejection of the temporary memorandum framework, would expose markets that have already absorbed most of the good news. For clients with meaningful cross-border exposure, this is the point in the cycle where the quality of hedging execution matters more than any single macro call, because the distribution of outcomes is bimodal and neither tail is obviously smaller than the other.