CAPITALDIGEST MARKET REVIEW, 13/04/2026

DOLLAR JUMPS AS FAILED US/IRAN PEACE TALKS SPARK FRESH SAFE-HAVEN PUSH

The dollar jumped against other major currencies in thin trading late on Sunday, as investors sought the relative safety of the U.S. currency after marathon ⁠talks between Washington and Tehran failed to yield a peace deal, plunging markets into a seventh week of ​uncertainty. President Donald Trump on ​Sunday said the U.S. ​Navy would start blockading the Strait of Hormuz, a choke point for 20% of the world’s daily energy supplies that Iran effectively closed since the war started in late February. That has ⁠driven ‌oil prices up by over 30% and fuelled fears ⁠of a widespread surge in inflation. The dollar, which has acted as a safe haven given the United States’ limited exposure to imported energy-price inflation, rallied as Asian markets opened for trading, leaving the euro down 0.53% at $1.1663 and gaining 0.1% against the Japanese yen to trade at 159.43. On April 7, the U.S. and Iran announced a two-week ceasefire, which investors initially ​cheered by selling oil and putting some capital back into risk assets such as stocks. Concern over the deal’s fragility has since prompted the unwinding of some of those trades. “This is an absolute unwinding of any optimism ⁠heading into the peace talks into that play of dollar: safe-haven; oil jumping and selling out of ‌everything else,” City Index senior market analyst Fiona Cincotta said. “On ‌the other hand, we have seen the markets over-exaggerate sometimes. And I think especially around this scenario, the market is struggling to really price it correctly, because there is so much uncertainty, so many ⁠unknowns.” More risk-sensitive currencies such as the Australian dollar and sterling came under heavy pressure, ⁠falling 1.1% and 0.5%, respectively. With expectations building for a resurgence in inflation, investors have priced in the possibility of several central banks, such as the European Central Bank and the Bank of England, leaning towards raising interest rates this year, in stark contrast to expectations prior to the war that borrowing rates would remain unchanged or fall. Global equities, which ended last week at their highest level since early March, buoyed by optimism that the United States and Iran were heading towards some kind of resolution, are still 2% below where they were before the war broke ​out. Gold has lost about 10% in ‌value since late February, as investors see the dollar as a better safe-haven right now. On Friday, the dollar was heading for its largest weekly drop since January as other currencies gained on optimism that a ceasefire in the Gulf will hold and oil shipping will resume. The dollar had climbed in March as one ​of the few bastions of safety ​amid the U.S. and Israeli war on Iran, which sent oil prices rocketing, hit stocks and gold, and as inflation worries sank bonds. But since a shaky ceasefire was agreed on Tuesday, those positions are being unwound, with the U.S. dollar index down 1.3% so far this week. The euro has ⁠rallied ‌through its 200-day moving average this week to trade at $1.1690, a ⁠break of chart resistance that opens the way to further gains. The risk-sensitive Australian and New Zealand dollars are eyeing weekly gains of nearly 3% against the dollar, with the Aussie trading just above 70 cents and the kiwi at $0.5847. Sterling has shot up 1.8% this week and ‌is above its 200-day moving average to $1.3424. Even the yen, under intense pressure from Japan’s low interest rates, government spending plans and the country’s dependence on imported oil, traded just above recent lows at 159.2 to the ​dollar. “People were buying the U.S. dollar when the war was at its most intense moment and now they’re selling as the tail risk of a really bad outcome has faded quite a bit,” said Jason Wong, senior strategist at BNZ in Wellington. In the first 24 hours of the ‌ceasefire, just a single oil products tanker and five dry bulk carriers sailed through the Strait of Hormuz, which before the war accommodated about 140 ships a day and about a fifth of the world’s oil and liquefied natural gas flows.

POUND DIPS BUT SET FOR BIGGEST WEEKLY RISE SINCE JANUARY ON IRAN HOPES

The British pound edged lower on Friday but remained on track for its strongest weekly performance in three months, supported by easing geopolitical tensions following a US-Iran ceasefire agreement. Sterling slipped 0.15% to $1.342 during the session. Despite the modest decline, the currency was set to post a weekly gain of 1.7%, marking its biggest rise since mid-January. The rebound reflects improved investor sentiment after weeks of volatility triggered by rising energy prices and geopolitical uncertainty. Market confidence received a boost earlier this week after US President Donald Trump announced a two-week ceasefire agreement involving Iran. The deal includes the reopening of the strategically vital Strait of Hormuz, a critical passage through which around 20% of global oil and liquefied natural gas shipments typically pass. The announcement led to a sharp rally in sterling, with the pound climbing 0.7% on Wednesday. Investors interpreted the development as a potential turning point in a conflict that had driven up energy prices and weighed on global economic growth. However, optimism remained cautious as signs emerged that the ceasefire could be fragile. On Friday, Trump said Iran was doing “a very poor job” of allowing oil shipments through the strait. At the same time, Israel continued its strikes in Lebanon, adding to concerns about the stability of the agreement. Analysts suggested that financial markets were taking a wait-and-see approach ahead of upcoming negotiations scheduled in Pakistan. “Financial market moves overnight generally have been relatively modest,” said Lloyds Bank analysts Sam Hill and Nicholas Kennedy in a research note. They added, “It looks like markets are pinning their hopes on positive developments in negotiations in Pakistan over the weekend.” The cautious tone highlights lingering uncertainty despite the recent rebound in risk sentiment. Since the conflict began on February 27, the pound has declined 0.4% as of April 10. Other major currencies have also weakened. Sterling faced particularly strong pressure in March, when it dropped 1.9% against the dollar. The decline coincided with a surge in energy prices and a broader sell-off in global equities, prompting investors to seek safety in the US dollar. The UK’s reliance on energy imports further exacerbated the pound’s weakness during this period, as markets anticipated a potential drag on economic growth. The US dollar showed signs of weakening, with the dollar index on track for its largest weekly decline since mid-January. Investors have been rotating out of the safe-haven currency and reallocating funds into equities, bonds, and other currencies as risk appetite improves. Meanwhile, the euro remained largely stable against the pound on Friday, trading at 87.06 pence. Since the start of the conflict, the euro has slipped around 0.7% against sterling as traders continue to assess the relative economic impact of the crisis on different regions. Overall, while geopolitical risks persist, the pound’s recent performance suggests that markets are cautiously optimistic about the potential for stabilisation in global conditions.

STERLING TICKS HIGHER, REMAINS DRIVEN BY MIDDLE EAST DEVELOPMENTS

The pound inched higher on the dollar on Thursday and held onto the bulk of U.S.-Iran ceasefire-inspired gains the previous session, though with that deal looking fragile it failed to climb any further. Sterling was last up 0.1% on the dollar at $1.3407, well up from below $1.33 before the deal was announced but off its Wednesday high of $1.348, reflecting traders’ nervousness about how sustainable the ceasefire will be. Israel bombed more targets in Lebanon on Thursday, and there was no sign Iran had lifted its blockade of the Strait of Hormuz, which has caused the worst disruption to global energy supplies in history. Tehran said there would be no deal as long as Israel was striking Lebanon. The dollar has appreciated throughout the conflict as investors see the U.S. economy as being less exposed to the war – it is a net energy exporter – than other countries such as Britain. The pound, like other European currencies, has risen or fallen on the dollar depending on headlines. The pound also gained on the euro on Wednesday, which Francesco Pesole, currency analyst at ING, said was due to sterling’s higher sensitivity to gains in equities, which surged on Wednesday. The euro was last at 87.11 pence, a touch higher on the day, and bouncing off its Wednesday low of 86.88 pence. Pesole said he does not think the pound can appreciate much more on the euro, noting that expectations of rate hikes from the European Central Bank could prove more sustained than those for the Bank of England. “After all, the BoE was already ready to cut before the war began,” he said.

DOLLAR STRUGGLES TO REBOUND AS FRAGILE US-IRAN CEASEFIRE KEEPS MARKETS WARY

A fragile calm reigned across currency markets on Thursday ​as traders kept their eyes fixed on whether the ceasefire between the U.S. and Iran would hold, a ‌day after its announcement sent the dollar tumbling across the board, setting it on track for its worst week since the conflict began in late February. The deal appeared to be on thin ice, as Israel bombed more targets in Lebanon, and there was no sign Iran had lifted its blockade of ​the Strait of Hormuz, which has caused the worst-ever disruption to global energy supplies. Iranian negotiators were expected to set ​off later on Thursday for Pakistan for the first peace talks of the war, but Tehran ⁠said there would be no deal as long as Israel was striking Lebanon. Israeli Prime Minister Benjamin Netanyahu said he was seeking direct ​talks with Beirut, with a “focus on disarming Hezbollah and establishing peaceful relations between Israel and Lebanon.” President Donald Trump said all U.S. ships, ​aircraft, and military personnel would stay in place in and around Iran until it fully complied with the deal.

STERLING NOT FAR FROM EARLY MARCH LEVELS AGAINST THE EURO

Sterling edged higher on Tuesday but remained near early-March levels against the euro and close to a more than four‑month low versus ​the dollar. Britain is highly exposed to energy imports and investors remain nervous ‌about the country’s fragile public finances. The greenback edged lower as traders kept a close watch on a U.S.-imposed deadline for Iran to reopen the Strait of Hormuz to shipping or ​risk attacks on its infrastructure. Sterling was last up 0.30% at $1.3278. It ​hit $1.316 last week, its lowest since November 26. The pound rose 0.1% ⁠to 87.14 pence against the euro on Tuesday. It was at 87.60 before ​the beginning of the war in Iran. “The UK is not as lacking in ​self-sufficiency as the European Union,” said Matthew Ryan, head of market strategy at global financial services firm Ebury. “The UK’s energy dependency ratio of around 35% actually compares rather favourably with the ​EU average, while domestic generation of renewables perhaps offers a partial growth buffer,” ​he added. Yields on British government bonds, which had surged through much of March amid inflation ‌fears ⁠triggered by rising energy prices following the Iran conflict, eased in late March and early April. Bank of England Governor Andrew Bailey said last week markets were still getting ahead of themselves by pricing in interest rate hikes by the central bank, ​which wants to avoid ​adding to the ⁠damage Britain’s economy faces. “Although forex markets are currently reacting less to changes in interest rate expectations, this is nevertheless one ​of the reasons why we still anticipate higher euro-sterling levels ​in the ⁠coming months,” said Michael Pfister forex strategist at Commerzbank, after referring to Bailey’s remarks. Businesses in Britain’s services sector reported the biggest month-on-month jump in costs in March since ⁠2021, while ​a Bank of England survey showed last ​week that British companies expect to raise prices more quickly in the coming 12 months.