Market overview

Markets have steadied. WTI has rebounded around 15% from last Friday’s one-month low of 80.56, lifting crude back above $90 per barrel. The DXY has also recovered about 1% from its recent low at 97.6, while equities have held onto gains following the sharp tech rebound into last weekend.

For now, price action suggests investors still favour a contained-shock narrative, closer to 1990 to 1991 than a more persistent energy-driven sell-off. That only works if the move in oil fades before it creates a more entrenched inflation problem.

That remains the key risk. Markets are pricing disruption as a premium, not as a full worst-case outcome. But the Strait of Hormuz remains a major vulnerability. If diplomacy fails to keep the shock contained, the current rally could prove self-limiting.

USD: Dollar regains support

The dollar has firmed alongside oil, with investors rebuilding some defensive positioning as energy risk returns to the foreground.

For now, markets still appear willing to back a de-escalation scenario, giving President Trump’s calls for patience some room. But the dollar’s next move will depend less on rhetoric and more on duration. If disruption proves short-lived, support may fade. If energy stays elevated, the dollar is likely to remain well supported.

GBP: Sterling still looks resilient

Sterling has slipped back below 1.35 against the dollar as crude has pushed higher, but the broader April rally in GBP/USD still looks intact rather than reversed.

Against the euro, sterling remains firmer. GBP/EUR has moved back above 1.15 and reached its highest level this month, helped by a slightly more supportive domestic backdrop. UK inflation at 3.3% year-on-year landed in a constructive range, firm enough to keep near-term BoE cuts off the table without reviving sharper stagflation fears.

Political noise has also eased. Concerns around Starmer’s grip on power have not fully disappeared, but markets appear more comfortable that an immediate shift is unlikely, allowing sterling some breathing room for now.

EUR: Growth concerns are building

The euro remains caught between near-term inflation risk and a softer growth outlook. Germany’s decision to halve its 2026 growth forecast to 0.5% from 1.0% highlights the pressure now building across the euro area. Next year’s forecast was also revised lower.

That does not guarantee immediate downside for the euro, but it does leave the medium-term backdrop looking less supportive. Markets still price a good chance of an ECB hike by June, but policymakers seem reluctant to move too quickly while conflict-related weakness continues to weigh on activity.

That leaves the euro without a clean bullish story. Inflation is a concern, but growth is deteriorating, and that tension is limiting upside conviction.

Looking ahead

• Oil remains the key driver of FX and broader risk sentiment.
• The dollar should stay supported while energy prices remain elevated.
• Sterling still looks more resilient than the euro on the crosses.
• The euro faces a tougher balance between inflation pressure and weaker growth.
• The next market move will depend on how quickly disruption in the Middle East starts to fade.