Market overview

Markets opened the week with a more defensive tone after the US and Iran rejected each other’s latest peace proposals, testing the ceasefire and lifting oil prices. Brent crude rose around 4% at the open to trade near $105 per barrel, with the Strait of Hormuz still shut and investors reassessing the risk of renewed disruption.

The move has restored some safe-haven demand for the dollar, although gains remain measured. Asian equities have held up well, supported by renewed enthusiasm around AI and technology shares, leaving markets caught between higher energy prices and resilient risk appetite. MSCI’s Asia Pacific index is around 0.5% higher, led by tech.

For now, investors appear reluctant to price a full escalation. Both Washington and Tehran have signalled little appetite for a return to March-style tensions, while China is due to meet President Trump this week. That combination has helped contain the market reaction, even as oil remains the key pressure point.

USD: Data helps, but geopolitics leads

The dollar ended Friday lower despite a firmer US labour market report. April payrolls rose by 115k, while March was revised up to 185k from 178k. Unemployment held at 4.3%, marking the first back-to-back improvement in almost a year and suggesting the jobs market is stabilising after the weakness seen through 2025.

The market reaction was muted, reinforcing the view that relative rate expectations are being overshadowed by geopolitical risk. Uncertainty around Kevin Warsh’s expected appointment as Fed Chair may also be limiting conviction, with investors unsure how hawkish the Fed could become under his leadership.

The dollar is around 0.2% firmer this morning, trading just above 98. A renewed US push to escort vessels through the Strait of Hormuz would likely offer clearer upside, bringing last week’s highs near 98.300 back into view. Tuesday’s April CPI print is the next domestic data point, although recent price action suggests geopolitics remains the more powerful driver.

GBP: Supported, but oil limits the upside

Sterling begins the week under pressure, with global drivers firmly in control. GBP/USD posted a fifth straight weekly gain last week, but cable has slipped after the latest setback in US-Iran peace efforts lifted crude prices and US Treasury yields.

The pullback has so far held above the rising 21-day moving average, suggesting the move remains corrective rather than a break in trend. Higher oil prices are a clear headwind for the pound, but resilient equity markets have prevented a sharper unwind in risk-sensitive currencies.

Domestic politics is less of an immediate catalyst. Labour’s poor local election results raise medium-term questions around fiscal discipline and political stability, but markets have absorbed the news calmly. With no immediate leadership challenge to Prime Minister Starmer and no visible cabinet revolt, sterling and gilts stabilised late last week.

EUR: Less room for borrowed strength

The euro opened softer against the dollar and commodity-linked currencies such as NOK and CAD, while gaining against higher-beta CEE currencies. This remains the typical pattern since the conflict moved into its blockade phase and hopes for a quick settlement faded.

EUR/USD is still holding near the upper end of the 1.17 handle, helped by the perception that both the US and Iran want to avoid a deeper escalation. Even so, the backdrop looks less favourable than in 2025, when the euro benefited from bouts of broad dollar weakness without needing much support from its own fundamentals.

Institutional euro positioning also looks less crowded than before the conflict. At the same time, the dollar’s safe-haven role has reasserted itself after being challenged last year by de-dollarisation concerns linked to US policy uncertainty. With the US economy still relatively firm and the country better insulated from oil shocks as a net exporter, EUR/USD may struggle to extend higher without more positive euro-specific catalysts.

Looking ahead

• US CPI on Tuesday is the key data release, although FX sensitivity may remain limited unless the print materially shifts Fed expectations.
• Oil and the Strait of Hormuz remain the main market risk, particularly if the US revives vessel escort plans.
• EUR/USD is likely to stay anchored around 1.17 unless geopolitical tensions escalate sharply.
• GBP/USD should remain supported while equities hold firm, but higher energy prices are likely to cap rallies.
• China’s meeting with President Trump could help shape sentiment if it points to a broader diplomatic off-ramp.