Last week was another eventful one for markets, with the ongoing situation between the U.S. and Iran continuing to dominate sentiment. Over the weekend, President Trump struck a slightly confusing tone, with messages that appeared more aggressive than in previous weeks, while simultaneously suggesting that talks between the U.S. and Iran were progressing well.
This kind of mixed messaging is exactly what keeps markets on edge. There is no clear direction, no confirmed de-escalation, and no outright escalation either. As a result, markets are left reacting in real time to headlines rather than positioning around a clear macro view. That typically leads to choppier price action and shorter-term moves, particularly in FX.
For now, the expectation is that this theme continues into the week ahead. Until there is something more concrete from either side, geopolitical headlines will remain the primary driver of sentiment.
A Shortened Week with Thinner Liquidity
This week is also shortened due to Easter Monday, with UK and most European markets closed at the start of the week. That immediately reduces liquidity, particularly in the early part of the week, which can exaggerate market moves.
On Monday, the only notable release is U.S. ISM services data, which is expected to come in slightly weaker. Under normal conditions, this could have some impact on the Dollar, but with thinner liquidity and ongoing geopolitical developments, it is unlikely to be the main driver. Instead, markets are likely to remain focused on any fresh headlines.
Data Begins to Pick Up Midweek
As markets return to full participation on Tuesday, we get services PMI data from both the Eurozone and the UK. These are expected to remain unrevised, so unless we see any surprises, they are unlikely to shift the market significantly. That said, continued softness in services would reinforce the broader narrative of slowing growth across Europe and the UK.
Wednesday brings a slightly more interesting mix of data. The Reserve Bank of New Zealand is expected to keep interest rates on hold at 2.25%, with markets likely paying closer attention to forward guidance rather than the decision itself.
In Europe, we have PPI and retail sales data, both expected to come in weaker than the previous month. This points to softer demand and ongoing pressure within the European economy, which could weigh slightly on the Euro if confirmed.
Later in the evening, we have the FOMC minutes. Under normal circumstances, this would be a key event, but given how quickly the macro backdrop has shifted recently, these minutes may feel somewhat outdated. Unless there is something notably different in tone, markets may largely look through this release.
U.S. Data Takes Focus Towards the End of the Week
Thursday is where attention begins to shift more firmly toward the U.S. economy. We have both Core PCE, the Federal Reserve’s preferred measure of inflation, and GDP data.
GDP is expected to remain unrevised at 0.7%, which would suggest moderate but unspectacular growth. Core PCE will be watched more closely, particularly given the recent moves in energy markets and the potential inflationary impact of geopolitical tensions.
Friday then becomes the key data point of the week, with U.S. CPI expected to rise to 3.4%. If we see inflation ticking higher, it will reinforce the idea that energy prices and geopolitical risks are feeding through into the real economy.
From a market perspective, this matters. Higher inflation reduces the likelihood of near-term rate cuts from the Federal Reserve and can provide support for the US Dollar. However, if inflation rises too quickly, it also brings concerns around growth and could increase overall market volatility.
FX Perspective: Still a Headline-Driven Market
Despite a reasonable amount of data this week, the reality remains that FX markets are still being driven primarily by geopolitics.
The US Dollar continues to benefit from its safe-haven status when uncertainty rises, but at the same time, expectations around future Fed policy are keeping a lid on sustained strength.
For Sterling and the Euro, the backdrop is slightly more challenging. Both economies are showing signs of slower growth, and any additional pressure from higher energy prices only complicates the outlook further.
This leaves FX markets in a delicate position. Moves are likely to be sharp, but not always sustained, as sentiment shifts quickly depending on the latest headline.
Final Thoughts
This is another week where the data matters, but not as much as the bigger picture.
With reduced liquidity, ongoing geopolitical uncertainty and key U.S. inflation data to close out the week, conditions are in place for continued volatility.
For anyone with currency exposure, it is a market that requires a bit more attention than usual. Timing and flexibility will be key, especially as we continue to move through a period where headlines, not just fundamentals, are driving direction.
GBP/EUR 1.1466 GBP/USD 1.3270 GBP/AED 4.8782
GBP/AUD 1.9112 GBP/CHF 1.0588 GBP/CAD 1.8462
GBP/NZD 2.3205 EUR/USD 1.1563 GBP/ZAR 22.2921