The Daily Brief

Sterling closed Monday's session under renewed pressure, slipping back toward $1.3500 as safe-haven flows returned to the dollar following Iran's decision to reassert control of the Strait of Hormuz. The pair had rallied meaningfully in early April on ceasefire optimism, posting a roughly 2.6% gain for the month at its recent peak, but the fragility of that move is now evident. With the ceasefire formally expiring today and no confirmed path to a durable agreement, the geopolitical premium priced into sterling has been partially surrendered.

The Bank of England's 30 April meeting has become the immediate focal point. Before the conflict began, two rate cuts were expected from the MPC in 2026; since March's surge in oil prices, markets swung to pricing as many as four hikes. That extreme has since been pared back sharply. JP Morgan now expects a single hike, most likely in June rather than April, after Governor Bailey's remarks indicated the Committee needs more data before a majority could coalesce around an increase. The rate currently stands at 3.75%, and around 90% of economists surveyed by Reuters expect a hold at the end of this month, though five foresee a 25-basis-point hike.

The analytical division is real and consequential. Analysts at Rabobank argue that aggressive tightening poses recession risks given the UK's modest pre-war growth trajectory, while the National Institute of Economic and Social Research has modelled a scenario in which sustained energy cost pressures push Bank Rate to 4.5% over the next twelve months. The BoE is navigating a classic stagflationary bind: inflation driven by an external supply shock, but with demand-side resilience insufficient to absorb a tightening cycle without damaging growth. UK manufacturing input costs saw their steepest monthly acceleration since 1992 in March, and business activity growth reached a six-month low.

For clients managing GBP flows, the range of credible outcomes at the April 30 meeting is unusually wide, and the ceasefire expiry today adds a further variable before that date. Sterling's partial recovery from March lows reflects the degree to which the rate repricing has already been absorbed, but with the geopolitical situation actively deteriorating again and the economy softening, the currency's ability to extend gains from here is constrained. The window between now and April 30 is one in which the cost of open exposure is not neutral.

The Dollar Index is holding at 98.31 this morning, recovering from Friday's brief dip below 98, its lowest level since the conflict began, which followed Iran's temporary announcement that the Strait was open. The reversal over the weekend was swift. Iran's reassertion of control and the U.S. refusal to lift port blockades sent oil back above $95 and safe-haven demand flowing back into the greenback. The dollar's dual advantage, as both a safe-haven asset and the currency of a net energy exporter, reasserts itself every time the geopolitical situation deteriorates, which it continues to do with regularity.

The Federal Reserve's posture remains the most straightforward among major central banks. The CME FedWatch tool shows a 99.5% probability of a hold at the Fed's meeting this month, with Chair Powell's most recent comments reiterating patience in the face of a shock that poses two-sided risks to the mandate. The incoming Fed Chair Warsh, viewed by some market participants as inclined toward easing, introduces a medium-term policy uncertainty that gold strategists at State Street have flagged as a potential tailwind for bullion when the geopolitical premium eventually fades. For now, though, the Fed's steady hand relative to hiking peers limits both the dollar's upside and the risk of a sharp correction.

The IMF's April World Economic Outlook, released last week, revised global growth down modestly for 2026, citing the conflict's energy supply shock as the primary driver. In an adverse scenario, the IMF models a 50-basis-point Fed hike, a configuration that would lift the dollar materially against all major peers. Markets are not yet pricing that scenario, but the probability of a U.S. rate increase has crept back into the conversation. An upcoming Trump-Xi meeting, rescheduled for May, offers a potential source of broader geopolitical de-escalation, though the direct connection to the Iran conflict and the Strait remains unclear.

For clients with U.S. dollar receivables or payables priced in recent weeks, the dollar's current level represents a configuration shaped by an unusual combination of forces: safe-haven flows, energy advantage, and the Fed's comparative patience. That configuration is not permanent. A credible path to reopening the Strait would compress safe-haven demand quickly, and rate expectations in Europe could reverse in the other direction just as fast. The dollar's resilience is real, but it is contingent, and managing against it requires clarity on duration rather than directional conviction.

The rand traded at 16.40 to the dollar in Monday's session, slipping 0.6% as oil prices surged on news that Iran had reinstated control of the Strait of Hormuz, removing the brief relief the currency had gathered from the previous week's ceasefire optimism. The currency has tracked the conflict with unusual fidelity: every escalation in the Strait has weighed on the rand, not because of direct exposure but because of what sustained oil prices above $95 mean for inflation in a net energy-importing economy with limited fiscal headroom to absorb the shock.

The SARB held its repo rate at 6.75% at its March meeting, significantly adjusting its economic forecasts in the process. Governor Kganyago confirmed the bank has shifted to projecting only one rate cut in 2026, compared with two expected before the conflict began, while modelling two Iran conflict scenarios, short-term and prolonged, both of which imply higher-for-longer rates. The bank now projects headline inflation accelerating to around 4%, with fuel inflation above 18% in the second quarter. The next MPC meeting is scheduled for May, and the data flow before then matters considerably.

Statistics South Africa is releasing March CPI data tomorrow, with economists forecasting a rise to 3.1% year-on-year from 3.0% in February. That print is the first to capture early second-round effects from the oil shock. Analysts at Continuum Economics project March inflation surging to approximately 3.8%, driven by energy costs, a weaker rand, food prices, and elevated fertiliser costs linked to the conflict. If the actual print lands materially above consensus, the rand will face further pressure and the SARB's May meeting will attract significantly more hawkish interpretation.

The rand has shed roughly 4% against the dollar since the conflict began, recovering partially from its March highs of around 17.19 but remaining structurally vulnerable. The pairing between the oil price and risk appetite is direct: analysts at FX Leaders note that USD/ZAR is rising again as geopolitical tensions, higher oil prices, and a stronger dollar compound each other. Clients receiving rand revenues on a forward basis, or managing supplier costs denominated in ZAR, are navigating an environment where the dominant variables, oil, U.S. dollar strength, and SARB posture, are all subject to rapid revision depending on events today and over the remainder of this week.

Brent crude is trading at $95.42 this morning, up more than 5% from Friday's close, after Iran reinstated control of the Strait of Hormuz over the weekend. The reversal was sharp: as recently as Friday, Brent had crashed 10% to below $90 on news that the Strait was temporarily open, with futures markets briefly pricing in a resolution to nearly fifty days of supply disruption. That optimism was extinguished within 48 hours. The U.S. seizure of an Iranian cargo vessel, combined with Washington's refusal to lift its port blockade, prompted Tehran to reassert control, and the ceasefire formally expires today. September Brent futures are trading in the low $90s, reflecting a market that continues to price elevated energy costs as a persistent feature rather than a temporary spike.

Asian equity markets opened Tuesday with a tentative recovery, with Reuters reporting a rebound in early trade as investors assessed whether diplomatic channels remain open. The gains follow a sharp sell-off on Monday, and the conviction behind any recovery is limited while the Strait situation remains unresolved. European and Wall Street futures have been similarly volatile, with the S&P 500 unable to sustain any ceasefire-driven rallies for more than a session. The IMF has trimmed its global growth forecast for 2026 by 0.2 percentage points relative to its pre-conflict projections, with the adverse scenario in its latest World Economic Outlook pointing to a 1.3 percentage point reduction in emerging market growth.

Gold is trading at approximately $4,794 per ounce, down 0.7% from Friday, continuing its unusual trajectory in this crisis. The metal dropped roughly 9% from its highs after the conflict began, as the hawkish rate repricing in Europe and the UK overcame safe-haven demand, and as gold was used as a liquidity sleeve to cover losses elsewhere. State Street's gold strategy team notes that if geopolitical tensions ease and markets rapidly reprice Fed rate cuts back in, gold could re-test its all-time highs. For now, the metal's behaviour is more shaped by real interest rate expectations than by conventional safe-haven logic.

The structural repricing of the global rate cycle that began in March remains substantially intact, despite the ceasefire optimism of the past two weeks. The ECB, BoE, Bank of Japan, and RBA have all shifted toward tighter policy since the energy shock began; only the Fed has held its ground. JP Morgan expects the BoE to deliver one hike in June rather than this month, and the ECB path is similarly calibrated to the persistence of the energy shock. For clients managing cross-border payments, supply chains, or treasury positions, the residual uncertainty is not about direction, it is about timing: whether the next geopolitical development arrives before or after the May and June central bank meetings that will set the rate configuration for the rest of the year.