The Daily Brief

Sterling closed Wednesday's session at $1.3515, a marginal gain on the day that masked a volatile session shaped by two simultaneous data releases pulling in different directions. UK CPI came in at 3.3% for March, up from 3.0% in February and the highest reading since December. Motor fuels rose 4.9% in the month, the largest upward contribution to the headline figure, while diesel prices climbed 17.6 pence per litre between February and March alone. Heating oil surged 95.3% year-on-year. These are not rounding errors: they are the direct arithmetic of the Iran conflict entering domestic UK price data, and March captures only the beginning of the transmission.

The April figures, due next month, will include fuel levy increases implemented on 1 April. The UK swaps curve repriced materially on the back of the CPI release, with markets moving to imply nearly 50 basis points of Bank of England rate increases over the next twelve months. The consensus among economists, however, remains more cautious. All 62 respondents in the Reuters poll expect a hold at the April 30 meeting, with the debate centred on June and beyond. Analysts at Brown Brothers Harriman argue that hike expectations are still too rich relative to the economic slack the Bank of England itself estimates: the MPC projects a negative output gap of around 1% of GDP in 2026.

ING expects headline inflation to continue rising, potentially reaching between 3.5% and 4% by autumn when the Ofgem price cap is updated in July, but contends that the underlying impulse remains partly supply-driven rather than demand-driven, which limits the case for aggressive tightening. The political dimension has added a further layer of complexity to the sterling outlook. Former Foreign Office chief Olly Robbins' testimony over Peter Mandelson's contested U.S. ambassador appointment created domestic noise around Prime Minister Starmer's position, though the market impact has so far been limited. More consequential for the pound this morning is the flash PMI data for April, due today.

UK manufacturing is expected to fall into contraction at 49.9, down from 51.0 in March. The services component is forecast at 50.0, barely at the expansion threshold. A miss on either figure would deepen the stagflationary read on the UK economy and complicate the BoE's task further. Brown Brothers Harriman expects GBP/USD to trade within a 1.34 to 1.37 range in the near term, reflecting a pound caught between inflation-driven rate expectations and a growth profile that does not support meaningful tightening.

For clients managing GBP-denominated payments or receipts, the week ahead is unusually event-dense. Today's PMI data, followed by the April 30 BoE decision seven days from now, will jointly determine whether sterling holds the $1.35 level that has acted as a floor through much of April, or whether a deteriorating growth signal sends it lower. The inflation data argues for a stronger pound through rate expectations; the growth data argues against it. The two do not resolve neatly, and the window of rangebound uncertainty may persist longer than either bulls or bears currently anticipate.

The Dollar Index is holding at 98.52 this morning, nudging higher as Iran's seizure of two container ships in the Strait yesterday reinforced safe-haven demand and sent Brent back toward $100. The dollar's week has been a study in the ceiling imposed by competing forces: it strengthens on escalation and gives ground on ceasefire optimism, but the net directional move remains constrained by the fact that every major central bank outside the Fed is now priced to tighten. The rate differential argument that historically drives the dollar's sustained rallies is structurally weaker in this environment than the geopolitical argument, and the geopolitical argument has been inconsistent enough to prevent sustained directional moves.

Today's flash PMI data for the U.S. is the most consequential scheduled release of the week for the dollar's near-term trajectory. The composite reading is expected around 50.0, with services struggling under higher fuel costs and manufacturing remaining relatively supported by domestic energy production. A reading materially below 50.0 on the composite would introduce genuine recession risk into Fed pricing for the first time since the conflict began, shifting the narrative from "Fed on hold while others hike" to "Fed eventually cutting while others pause," a scenario that would weaken the dollar significantly. Conversely, a firm reading near 51.0 or above would reinforce the patient Fed posture and sustain the dollar's current floor.

There is also a political signal worth monitoring: confirmation hearings for incoming Fed Chair Warsh are under way, with markets assigning him a mild easing bias relative to Powell, a characterisation that introduces a medium-term policy uncertainty not yet fully priced. The longer-term dollar picture continues to be shaped by the IMF's April World Economic Outlook, which modelled an adverse scenario in which the Fed is compelled to hike by 50 basis points in 2026. That is not the base case, but the conditions that would necessitate it, persistent energy-driven inflation spilling into core prices and wage expectations, are exactly what Wednesday's UK CPI data illustrated is possible in an energy-importing economy.

The U.S., as a net energy exporter, has a materially different exposure, but the global demand destruction now estimated at 4 to 5 million barrels per day still touches American corporate earnings through supply chain costs, travel demand, and export market health. For clients with dollar receivables or cross-border payment obligations in USD, the current configuration continues to offer a relatively anchored reference rate, but one that is sensitive to today's PMI release in a way that few single data points have been through this crisis. The dollar has become the most reliable instrument in an unreliable environment, and that status is itself a position worth examining: when the ceasefire eventually holds, the risk premium that sustains the current floor will unwind, and the speed of that reversal will be shaped by how quickly rate differentials can reassert themselves in the other direction.

The rand is trading around 16.60 to the dollar this morning, softer than Wednesday's close as Iran's seizure of two vessels in the Strait pushed oil back toward $100 and revived risk-off sentiment across emerging market currencies. The currency's reaction to Wednesday's domestic CPI release was notably contained: March inflation came in at exactly 3.1% year-on-year, matching the Reuters consensus precisely, and the rand showed limited movement in response. The market had already priced the outcome, and economists had been clear that March's print would not capture the full force of the oil shock. It is April's CPI, due in mid-May, that will carry the analytical weight.

The March data, however, is instructive in its composition. Housing and utilities remained the largest single driver of the headline rate, rising to 5.1% from 4.8% in February. Transport remained in deflation at minus 1.6% annually, but the monthly data told a different story: long-distance bus fares jumped 20% and airfares rose 14.3% in March alone. Stats SA explicitly noted that the March data does not yet reflect fuel price increases implemented on 1 April, nor Eskom's 8.76% electricity tariff increase that also took effect on that date. Analysts at Finance in Africa project fuel inflation moving toward 8% or higher in coming months, with the IMF forecasting a headline average of approximately 4.0% for 2026 overall, a meaningful upward revision from the pre-war trajectory. For the SARB, the challenge is that these cost pressures are externally sourced, and monetary policy cannot address the supply side of an energy shock without compressing demand in ways that compound the growth hit.

The SARB's next MPC meeting is in May. Governor Kganyago's March statement confirmed that the bank has reduced its expected rate cuts for 2026 from two to one, and is running parallel modelling scenarios for both a short-duration and a prolonged conflict. Fuel inflation above 18% in the second quarter sits in the bank's published baseline. In practical terms, this means the easing cycle that households and businesses had anticipated through the first half of 2026 has been deferred, and the conditions under which a cut might be reintroduced require either a material fall in oil prices or a credible reopening of the Strait, neither of which is in prospect today. S&P's upgrade of South Africa's sovereign rating to BB in November 2025 provides a structural backstop for rand sentiment relative to other emerging markets, but it does not insulate the currency from oil-driven risk-off moves of the kind that have pushed USD/ZAR from 15.72 in January to a March peak of 17.19.

For clients managing rand exposures, the current rate around 16.60 sits within a range that reflects neither the panic of late March nor the ceasefire optimism of mid-April. It is a holding pattern shaped by conflicting signals: a contained CPI print arguing for SARB patience, and an oil price that refuses to fall far enough to change the inflation calculus. The pair is likely to track Brent closely through the rest of April, with the May SARB meeting and the April CPI release being the next significant domestic anchors. Any sustained move in Brent above $105 would test the 17.00 level on USD/ZAR again; any credible progress toward reopening the Strait would support the rand toward 16.00 or below.

Brent crude opened this morning at $99.23, up more than 3% from Tuesday's post-ceasefire-extension close, after Iran's Revolutionary Guard seized two container ships in the Strait of Hormuz on Wednesday and fired on at least three others. The UKMTO reported a vessel attacked 8 nautical miles off the Iranian coast at 8:38am London time. A separate attack was reported 15 miles northeast of Oman. Demand destruction estimates have now risen to 4 to 5 million barrels per day, roughly 5% of global supply, with Asia most acutely affected given its dependence on Gulf LNG.

The ceasefire that Trump extended on Tuesday has not arrested the operational conflict in the waterway itself; it has merely paused formal U.S. military strikes on Iranian territory while Iranian naval forces continue to contest shipping. Flash PMI data for the U.S., eurozone, and UK is published today, and this is the week's most consequential scheduled release for understanding the pace of economic deterioration. UK manufacturing is expected to fall below 50.0 for the first time since the conflict began. The eurozone composite is expected to show similar softening. U.S. services, historically the most resilient component of the American PMI, is under pressure from fuel costs and the global slowdown in trade.

These are the first April-dated prints: they will capture business confidence and activity in the full month following the onset of the ceasefire cycle, a period characterised by whipsaw headlines and sustained energy prices above $90. The divergence between the U.S. and European readings will be particularly watched as a gauge of whether the energy exporter advantage is showing up in real economic terms yet, or whether global demand destruction is overriding the energy price windfall.

Gold is trading around $4,800 this morning, recovering from the mild safe-haven fatigue of earlier in the week as Iran's vessel seizures revived geopolitical risk pricing. The metal has traced a volatile path through this crisis: it sold off sharply in March as rising rate expectations in Europe and the UK overwhelmed the safe-haven bid, then recovered as the ceasefire reduced the immediacy of escalation risk, and is now firming again on fresh Strait attacks. State Street's gold strategy team notes that the metal retains significant upside if the Fed's posture shifts toward easing, whether through incoming Chair Warsh's inclinations or a genuine deterioration in U.S. growth data.

The incoming PMI print today is one of the cleaner tests of whether that growth deterioration is materialising in U.S. activity surveys. The broader context shaping all four sections of today's brief was captured by the IMF's April World Economic Outlook: global growth revised down by 0.2 percentage points in the reference scenario and by up to 1.9 percentage points in adverse scenarios, with the UK receiving the largest single downgrade among G20 advanced economies, to 0.7% from 1.2%. The IEA has characterised the supply disruption as the largest in the history of the global oil market.

The financial architecture is adjusting accordingly: credit spreads remain elevated, private credit funds have imposed redemption limits, and sovereign bond yields across Europe have failed to return to pre-conflict levels despite ceasefire optimism. For clients managing multi-currency treasury positions or cross-border cash flows, the week of data ahead is one in which the scheduled numbers finally have a chance to run ahead of the geopolitical headlines, at least briefly.