This week has the makings of one of the most consequential periods for currency markets in recent months — and for businesses with international exposure, it’s worth paying close attention.
Over the weekend, the US and Iran announced a peace deal, with the Strait of Hormuz — closed to shipping since February — set to reopen, and a signing ceremony expected as early as Friday. While the agreement is not yet finalised and the language from Tehran has so far been more cautious than that coming from Washington, the announcement itself marks a significant shift in tone after months of escalation.
This matters for currency markets because much of the volatility we’ve seen in oil prices and the US dollar over recent months has been directly tied to this conflict. Heightened geopolitical risk has historically supported the dollar’s role as a “safe-haven” currency, while disruption to Middle East oil supply routes has kept energy costs elevated — feeding through into inflation figures on both sides of the Atlantic. A credible de-escalation could begin to unwind some of that dynamic, though the pace and scale of any shift will depend heavily on how durable the agreement proves to be.
Layered on top of this geopolitical development are two of the most closely watched central bank decisions of the year so far.
The Federal Reserve — Wednesday
On Wednesday, the US Federal Reserve concludes its latest policy meeting — the first under newly installed Chair Kevin Warsh. While no change to interest rates is currently expected, this meeting carries unusual weight as markets look for early signals of how the new leadership approaches policy, particularly against a backdrop of inflation that has been running hotter than anticipated.
For businesses with dollar-denominated costs, revenues, or financing, the combination of a new Fed Chair’s first meeting and a fast-moving geopolitical backdrop creates a setup where market reaction could be more pronounced than the headline decision alone might suggest. Tone and forward guidance, not just the rate itself, are likely to be the key drivers here.
The Bank of England — Thursday
The following day, the Bank of England announces its own decision. This comes shortly after data showed the UK economy contracted slightly in April, reinforcing concerns about the pace of UK growth. The Bank’s tone — particularly around future rate expectations — will be closely scrutinised, especially given the gap that currently exists between UK and eurozone interest rates following the European Central Bank’s rate rise earlier this month.
Two major central bank decisions landing on consecutive days, against the backdrop of a potentially shifting geopolitical landscape, means this week carries real potential for sharp currency movements — in either direction.
The Bank of England — Thursday
For companies with international exposure — whether through overseas suppliers, customers, subsidiaries, or financing — weeks like this are a useful prompt to step back and review your current hedging position.
A few questions worth considering:
- How exposed are you right now? If exchange rates moved 2–3% against you this week, what would that mean for your margins, costs, or cash flow forecasts?
- What’s already hedged, and what isn’t? If you have upcoming payments or receivables in foreign currencies that aren’t currently covered, this is a reasonable moment to consider locking in rates before any potential volatility plays out.
- Does your current strategy reflect the current environment? A hedging approach that made sense a few months ago may need revisiting if the underlying drivers — interest rate differentials, geopolitical risk, inflation expectations — have shifted.
Tools like forward contracts allow businesses to lock in an exchange rate for a future date, removing uncertainty from budgeting and forecasting regardless of which way markets move this week. Market orders can also be useful for businesses working towards a specific target rate, allowing a conversion to trigger automatically if that rate becomes available.
A fast-moving picture
It’s worth noting that the situation with Iran remains fluid, and the language from both sides has not been fully aligned — so there’s a reasonable chance the picture shifts again before the week is out. Combined with two major central bank decisions, this is a week where staying informed and maintaining flexibility in your FX approach is likely to be more valuable than usual.
If you’d like to discuss your current hedging position or explore how these developments might affect your business specifically, our team is on hand to talk through your options — with no obligation.
