Currency markets start the week firmly focused on the US, with inflation data, rising oil prices and geopolitical risks all influencing currency movements. With volatility expected to pick up towards the end of the week, businesses and individuals with international payments should be prepared for sharper‑than‑normal market swings.
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US news to dominate currency markets
The US is firmly in the spotlight this week, with a series of economic releases shaping expectations around interest rates and the direction of the US dollar. While US GDP data is published on Thursday, it will not include the period during which the latest Middle Eastern tensions escalated. As a result, markets may treat the GDP figure as backward‑looking and place greater emphasis on inflation data later in the week.
For currency markets, this means the dollar could remain sensitive to any surprises, particularly if inflation pressures appear stronger or weaker than expected.
Oil prices continue to rise amid Middle East tensions
Oil prices remain supported as the deadline to agree a deal with Iran draws closer. Ongoing uncertainty surrounding the Strait of Hormuz is a key concern for markets. According to reports, around 20% of the world’s oil and gas passes through this vital shipping route, meaning any disruption could have significant global implications.
President Donald Trump has already indicated that pressure on Iran will continue unless a deal is reached, keeping geopolitical risk firmly priced into energy markets. Higher oil prices tend to feed directly into inflation, which can influence central bank policy and, in turn, currency valuations.
For FX markets, rising energy prices often support the US dollar while adding pressure to currencies of energy‑importing nations.
UK inflation expectations support sterling
In the UK, inflation is already expected to rise, increasing speculation that the Bank of England could consider raising interest rates at its next meeting. Higher interest rates typically make a currency more attractive to investors, which has helped to underpin sterling in recent sessions.
However, the pound remains sensitive to global developments, particularly US data and broader risk sentiment. Any shift in expectations around UK inflation or interest rates could quickly feed through into GBP exchange rates.
Key data to watch later this week
While Thursday’s US GDP release will attract attention, the most important event for currency markets comes on Friday afternoon with the release of US inflation data. Crucially, this report includes March’s figures, meaning it will reflect the early impact of rising energy prices and geopolitical tensions.
This data has the potential to trigger significant volatility across major currency pairs, particularly pound to US dollar and euro to US dollar, as markets reassess the outlook for US interest rates.
If you have upcoming currency requirements or would like to discuss how these events could affect your plans, we’re here to help, contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
