🇬🇧 GBP Outlook Cautious Despite Strong Weekly Gains

Last week, the Pound posted its strongest weekly performance of 2026 against USD, gaining over 1%. However, this move was driven more by Dollar weakness than genuine Sterling strength. Cable opened this week around 1.34 but quickly came under pressure, while GBP/EUR saw more modest gains and has also started the week on the back foot just below 1.15.

The broader outlook for Sterling remains cautious. Markets continue to price in domestic political risks ahead of next month’s local elections, with leadership speculation adding to uncertainty. Reports that Angela Rayner is increasing her public profile have fuelled expectations of potential internal pressure within the Labour Party, raising concerns over a possible shift in policy direction.

At the same time, geopolitical tensions in the Middle East remain a key external risk, particularly given the UK’s exposure to energy markets. Ongoing disruption around the Strait of Hormuz further adds to downside risks. Overall, a combination of political uncertainty and global tensions suggests the Pound may remain under pressure in the near term.

🇺🇸 Dollar Weakens as Fed Faces Inflation Dilemma

As previously noted, the Dollar came under pressure last week against both the Pound and the Euro, raising questions about its safe-haven status as geopolitical tensions increasingly appear to work against US interests. This comes despite a fragile ceasefire, with limited traffic through the Strait of Hormuz, particularly the absence of energy shipments, highlighting ongoing disruption. While oil prices have rebounded from post-ceasefire lows, the Dollar has failed to follow, signalling softer underlying demand. Markets have already been questioning USD’s role, with President Trump’s unpredictable communication adding further uncertainty.

On the domestic front, inflation data showed a sharp 0.9% month on month increase, driven largely by rising energy prices linked to the conflict. However, underlying inflation remains subdued, with core CPI rising just 0.2% monthly and 2.6% annually – pointing to a slowing economy. For the Federal Reserve, this presents a dilemma, energy-driven inflation is difficult to address with tighter policy, while higher rates risk further weakening growth. As a result, expectations for rate hikes have eased, keeping the prospect of future cuts alive, ultimately weighing on the Dollar.

🇪🇺 Euro Gains Ground on Dollar Weakness and Geopolitical Tensions

Focusing on the Euro, it broke higher against the Dollar last week, although the move was driven primarily by USD weakness rather than outright euro strength. This aligns with a broader trend of investors reducing exposure to US assets. Geopolitical tensions had previously capped EUR/USD, but last week’s break above resistance signals a shift in momentum, with former resistance now acting as support.

EUR/USD gained over 1% on the week. Although it dipped slightly at the start of trading, the pair opened just below 1.17 and continues to hold solid monthly gains of over 1%.

Against Sterling, the Euro also starts the week on firmer footing. The Pound has come under pressure following a rise in oil prices, after the US signalled its navy could become involved in blocking the Strait of Hormuz, intensifying concerns over global energy supply.

This Week’s Market Moving Data

It is a relatively quiet week for market-moving data, with focus remaining on developments surrounding the Middle East ceasefire as markets await President Trump’s next move. However, Tuesday brings key central bank commentary, with speeches from the Governor of the Bank of England and the President of the ECB. The day also features important US inflation data, with the release of the Core Producer Price Index (PPI).

Tuesday 14th April 

Core Producer Price Index (PPI)

The Producer Price Index (PPI) is important for the Dollar as it measures inflation at the wholesale level, often acting as an early indicator of future consumer price trends. Higher than expected PPI can support USD by increasing expectations of tighter Federal Reserve policy, while weaker data can weigh on the Dollar.

BoE Governor Speech & ECB President Speeches

The leaders of the European Central Bank and the Bank of England will deliver speeches on monetary policy and will be offering insights into future policy direction.