Last week felt slightly different from the pattern we’ve seen recently. While tensions between the U.S. and Iran remain elevated, President Trump held back from any further escalation, instead allowing a short window for diplomacy to play out. Talks have reportedly been given an additional 10 days to try and reach some form of ceasefire agreement.
That said, the situation remains unclear. Iran has not formally confirmed it is engaged in direct negotiations with the U.S., which has left markets in a state of uncertainty rather than relief. As a result, we’ve seen a more defensive tone return, with the US Dollar strengthening through the week and equity markets closing lower on Friday as investors reduced risk heading into the weekend.
This kind of environment, where there is no clear direction on geopolitics, often leads to choppier markets. Traders are reacting to headlines rather than committing to longer-term positioning, and that tends to favour the Dollar in the short term.
Quarter-End Meets a Shortened Week
We now head into the final week of the quarter and the start of a new financial period, which naturally brings an increase in positioning flows and rebalancing. Liquidity will also be slightly thinner than usual due to the Easter break, with markets closed on Friday and again the following Monday.
With only four active trading days, any data surprises or geopolitical headlines could have a more pronounced impact than usual.
This Week’s Key Data
Monday is relatively quiet, with German flash CPI the main release. Inflation is expected to rise to 2.7% from 1.9%, which is a notable jump and could start to raise concerns that inflationary pressures in Europe are not as contained as previously thought.
Tuesday becomes more interesting. We start with the RBA meeting minutes, which should give further insight into their recent rate hike and whether more tightening could follow. This is followed by UK GDP, expected to remain unchanged at 0.1%, suggesting the UK economy is still struggling to generate meaningful growth.
We then move into Eurozone flash CPI, expected to rise sharply to 2.6% from 1.9%. A move of this size in a single month will not go unnoticed and could begin to shift expectations around the ECB’s policy path. Canadian GDP is also released, with no growth expected, highlighting the broader theme of slowing global activity.
Wednesday brings a broad set of manufacturing data from the Eurozone, UK and the U.S., all expected to remain largely unchanged. While not typically market-moving on their own, they will help reinforce the narrative around global growth. Eurozone unemployment is expected to hold steady at 6.1%.
Later in the day, attention shifts to the U.S. with ADP employment data and retail sales. Retail sales are expected to improve, pointing to resilience in the U.S. consumer, while employment growth is expected to slow slightly.
Despite the bank holiday on Friday, we still have the release of U.S. Non-Farm Payrolls. Expectations are currently around 60,000 jobs added, which would represent a relatively weak print. Given how important employment data is for the Federal Reserve’s next move, this could still be a key volatility event despite reduced market participation.
Q2 Outlook: Policy, Energy and Geopolitics Collide
Looking ahead, Q2 2026 is shaping up to be driven by four key themes: central bank repricing, the inflation impact of energy markets, incoming economic data, and ongoing geopolitical risk.
The biggest shift coming into this quarter is the change in rate expectations. Markets have moved away from pricing in steady rate cuts from the Fed, ECB and BoE, and are now questioning whether rates may need to stay higher for longer, or even move higher again if inflation proves sticky.
For FX markets, this shift is crucial. Currency movements are being driven less by where rates are today, and more by where markets think they are heading.
The Bank of England and ECB meetings in April and June will carry more weight than usual. It’s no longer just about whether rates are cut, but whether policymakers validate the market’s more hawkish expectations or push back against them.
At the same time, energy remains a major wildcard. Any sustained disruption to oil or gas flows, particularly linked to Middle East tensions, could push inflation higher again. This would complicate the outlook for both the UK and Europe, where higher energy costs tend to feed directly into inflation and growth concerns.
For currencies, this creates a difficult balance. A rise in energy prices typically supports the US Dollar through safe-haven demand and higher yields, while leaving the Pound and Euro more exposed due to their reliance on imported energy.
FX Focus: What to Watch
For GBP/EUR, the key driver will be relative central bank expectations and growth outlooks. If the Bank of England is seen as holding rates higher for longer than the ECB, Sterling could find support. However, weaker UK growth or stronger Eurozone inflation could push the pair lower.
For GBP/USD, the focus remains firmly on the Federal Reserve. If U.S. inflation stays elevated and the Fed maintains a higher-for-longer stance, the Dollar is likely to remain supported. Sterling would need stronger domestic data to offset that.
For EUR/USD, the balance between ECB guidance and U.S. data will be critical. If the ECB leans more hawkish while U.S. data begins to soften, the Euro could recover. However, if energy risks weigh more heavily on Europe, the Dollar may continue to outperform.
Final Thoughts
This week may be shorter, but it is unlikely to be quieter. With quarter-end flows, key inflation data and ongoing geopolitical uncertainty, markets remain highly reactive.
As we move into Q2, the key theme is clear: this is no longer a straightforward rate-cut environment. Policy uncertainty, energy risks and geopolitical developments are all pulling in different directions, and that is likely to keep volatility elevated across FX markets.
GBP/EUR 1.1507 GBP/USD 1.3227 GBP/AED 4.8613
GBP/AUD 1.9302 GBP/CHF 1.0577 GBP/CAD 1.8407
GBP/NZD 2.3109 EUR/USD 1.1484 GBP/ZAR 22.7100