CAPITALDIGEST MARKET REVIEW, 04/05/2026

STERLING STEADY AT 10-WEEK HIGH IN QUIET END TO BUSY WEEK

The MR pound held near a 10-week high against the dollar on Friday as traders digested a week of central bank meetings in which the Bank ​of England kept interest rates steady and warned of inflation risks stemming ‌from the Iran war. Sterling was little changed at $1.3606 and a touch softer against the euro at 86.32 pence, after jumping sharply against both on Thursday. ING analysts said the previous session’s unusual rally “may have been a ​function of month-end flows, where equity portfolio managers were rebalancing into UK ​asset markets after their underperformance in April.” Fund managers typically target fixed allocations ⁠across regions and periodically buy or sell assets to restore those weightings after market ​moves. Liquidity on Friday was thin due to holidays across much of Europe, while the ​bigger medium-term focus for the pound was Thursday’s BoE meeting. The bank outlined a wide range of possible economic impacts from the Iran war, from scenarios that might require “forceful” rate rises to others that ​may warrant no increase at all. Governor Andrew Bailey said policymakers faced a “difficult judgement call” ​over coming months, warning that waiting for clear evidence of inflationary pressures could leave the BoE ‌acting ⁠too late. He said he did not want to push back against market expectations for at least two rate rises this year and described policy as being on an “active hold”. Markets see a June rate hike as roughly a coin toss and price in two ​25-basis-point increases across the ​BoE’s three meetings ⁠through September. But analysts say uncertainty is high. “A world where the supply of commodities out of the Middle East starts to normalise in ​the coming weeks would mean very little chance of policy ​tightening this ⁠year, we think – and no chance of a June hike,” said Morgan Stanley analysts. “In a scenario where the current level of disruptions in the supply of oil and gas persist ⁠for months, ​and commodity prices readjust higher, hikes become likely.” The ​European Central Bank, Federal Reserve and Bank of Japan also all left rates steady this week.

DOLLAR SET FOR SHARP WEEKLY LOSS VERSUS YEN AFTER JAPAN STEPS IN

The dollar was headed for its biggest weekly loss against the yen since ‌February on Friday after Japan was reported to have intervened to support its currency. Markets remained on edge after Japan’s top currency diplomat, Atsushi Mimura, said speculative positions were still evident, underscoring authorities’ unease over rapid yen moves. The dollar briefly slid from around 157.1 to 155.49 against the yen before recouping some ​losses after Mimura’s remarks. It was last up 0.26% to 157.04. “The durability of intervention remains uncertain,” said Uto ​Shinohara, senior investment strategist at Mesirow Currency Management in Chicago. “Historically, its effects tend to fade without accompanying policy ⁠shifts, rate hikes or coordination.” Two sources familiar with the matter told Reuters that officials had intervened to buy the yen on ​Thursday after it hit 160.7 per dollar, its weakest since July 2024. Japan is heading into its Golden Week holiday next week, with analysts ​speculating that officials could step in to support the yen again. “Given that the authorities conducted FX interventions during the Golden Week holiday in 2024, and that interventions in both 2022 and 2024 were carried out on consecutive days, the risk of additional intervention – even during the holiday period – remains, ​if USDJPY rebounds sharply towards 160,” said Barclays analysts led by Shinichiro Kadota. “Looking at past patterns, consecutive interventions have not necessarily been triggered ​only when USDJPY returned to the previous intervention level; rather, authorities have tended to step in again when the pair rebounded sharply.”

POUND RETREATS AS INVESTORS STAY CAUTIOUS AHEAD OF RATE DECISIONS

The pound edged lower against the dollar on Wednesday, as a stalemate over ‌peace talks to end the Iran war, together with caution ahead of a series of major central bank decisions, including the Bank of England, kept investor risk appetite in check. Sterling has recovered all the losses incurred by the Iran war and is sitting on a ​gain of 2.1% for April, making this its strongest monthly performance since last August. It was last ​down 0.15% at $1.3499 and was flat against the euro , which was last at 86.65 pence. The ⁠Federal Reserve delivers its decision on interest rates later on Wednesday and is not expected to make any changes to ​U.S. monetary policy. It is also possibly Chair Jerome Powell’s last meeting as head of the central bank before likely successor ​Kevin Warsh takes over. The BoE, which meets on Thursday, is not expected to deliver any change to interest rates, meaning traders will be looking closely at how policymakers voted to get a sense of how justified current market-based expectations for two rate hikes this year are. Britain’s ​economy faces a sharp slowdown this year and in 2027 due to the Iran war, and inflation will stay above ​the Bank of England’s target until 2028, according to forecasts from leading think tank NIESR published on Wednesday. “The Middle East conflict has ‌laid bare ⁠the fact that the UK remains highly exposed to global energy shocks,” David Aikman, NIESR’s director, said. With a net gain of 0.2% since the start of the war, sterling is still one of the best-performing major currencies, after the Norwegian crown , which has risen 2.5% and the Australian dollar , which is up 0.6%. Some of that is down to ​the steeper rise in UK ​government bond yields, compared ⁠with those elsewhere. Two-year gilt yields are nearly a full percentage point above where they were in late February, while two-year yields in Germany and the United States are up 67 ​basis points and 47 bps, respectively. Lawrence Mutkin, who is head of EMEA rates strategy ​at RBC Capital ⁠Markets, said this takes some pressure off the BoE’s Monetary Policy Committee to rush into rate rises. “The gilt market selloff has already tightened monetary conditions a lot: more than its US or EU equivalents. So the MPC definitely doesn’t need to ⁠raise Bank ​Rate to dampen the oil shock’s inflationary effect. But because monetary ​policy implementation is about communication, the MPC does need to deliver a message which will put downward pressure on inflation expectations,” he said in a ​note on Tuesday.

DOLLAR TUMBLES AFTER JAPANESE INTERVENTION BOOSTS YEN

The U.S. ​dollar fell sharply against the yen and other major peers on Thursday after Japanese authorities ‌intervened to support their currency, while oil prices retreated from four‑year highs as investors assessed risks from the war in the Middle East. Japanese Finance Minister Satsuki Katayama said earlier on Thursday the time to take “decisive” action in the market was nearing, in her strongest ​signal yet of potential market intervention to prop up the sagging yen. Two sources familiar with the ​matter told Reuters that officials had intervened to buy the yen, after it hit its weakest level against the ⁠dollar since July 2024. The dollar fell by as much as 3% against the Japanese currency to 155.5 yen, for the largest ​single-day drop since late December 2024. It was last down 2.33% at 156.52 yen. “It’s pretty obvious given the ​discussion from the ministry of finance about potential intervention,” said John Velis, Americas macro strategist at BNY. “It’s not really a surprise, plus the fact that the yen was in its own world as a currency during the last four weeks or so, and the ​intervention is pretty understandable,” Velis said. Safe-haven demand had lifted the dollar in March after the U.S.-Israeli war with Iran began, underscoring the ​U.S. economy’s relatively lower exposure to higher oil prices compared with the euro zone and Japan. The dollar index was down 0.80% at ‌98.06, on ⁠track to snap two straight sessions of gains.

EURO PROPPED UP BY A SELF-FULFILLING TECHNICAL SIGNAL

The euro has struggled against the dollar since the start of the Iran war, but it’s recently showing signs of securing ​a firmer footing. Technical analysis suggests buyers are willing to step in ‌before the single currency falls too far. That’s based on the euro’s ability to keep rising back above an important moving average — a tool used to smooth out ​price changes to help discern a trend. In this case, it’s the ​200-day moving average, which is among the most watched long-term trend ⁠indicators in technical analysis. It can become a self-fulfilling signal because so ​many traders and institutions watch this level. It tends to act as support, ​where buyers step in during a rising trend, and resistance — where sellers often prevail — in a falling market. The 200-day moving average currently is at $1.1677, and as long as the ​euro stays above there, many traders are likely to think that it ​can rise back to 1.1830, which was its highest level in the month of July ‌2025. ⁠Past highs and lows are often important price levels for the market. A close above $1.1830 would strengthen the euro’s outlook, allowing traders to focus on the September monthly peak of $1.1919, while a drop below the 200-day moving average ​would support more bearish ​views.The 200-day moving average has become support for the euro, where buyers appear to be stepping in. Holding above the ​200-day moving average makes traders more confident of further ​rises, potentially ⁠to the July 2025 high of $1.1830 and September 2025 peak of $1.1919. A drop below the 200-day moving average would indicate further losses for the euro are becoming ⁠more ​likely.