Energy markets continue to drive currency movement

It’s not true that FX markets have been a port in the storm...

...but we’ve certainly seen less volatility than most other asset classes in the past month. Of course if you look at something like USDZAR, the 7% monthly fall was a significant one, but in the major pairs things have felt more rangebound. GBPUSD, for example, has been in less than a 2.50% range. That is despite energy commodity prices leaping 60% higher, equity indices plunging by north of 10% in places, and the global monetary policy outlook being torn up. The very nature of FX markets is that there are two sides to every story, but that has been exacerbated by the two-sided nature of the news flow of late. Discerning where things actually stand in the Middle East has been particularly difficult, and FX markets have been a little less committal. The latest developments though, have been of cautious optimism.

The Strait of Hormuz could also be key for the long-term structural dollar outlook

It is well cited that a key reason for the dollar’s dominance in international markets is that most commodity markets are priced in USD. If Iran controls the flow through the Strait, there are suggestions of a possibility that ships will be granted passage if payments are made in Chinese yuan. That wouldn’t be consistent with the US administration’s ‘strong dollar’ policy, so the US may take action to prevent such an outcome. However, if it were to materialise, the USD outlook would shift materially, and there’d be further doubts thrown over the USD’s position as the international reserve currency. If the world no longer has to spend in dollars, it may be less inclined to hold so much in reserve. It’s likely unlikely, but is a tail risk to be aware of.

Sources: Bloomberg, Macrobond, Investec

Interest rate expectations have turned on a sixpence, which has thrown another proverbial spanner in the works for FX

At first, sterling interest rate markets scaled back expectations of cuts, but that quickly transcended into pricing in as many as four interest rate increases this year. That has retraced since on hopes of a de-escalation, but things still look starkly different to five weeks ago, as per Chart 1. Typically, a favourable move in interest rate differentials would benefit a currency. However, sharply higher interest rates driven by a negative supply shock is a different story, and one that FX markets have reacted to warily. Where the interest rate outlook and FX markets eventually settle, will be heavily dependent on global energy markets and in particular whether the Strait of Hormuz is reopened swiftly.

Elsewhere, the AUD and NOK have held onto their gains

On average the USD is now stronger versus its G10 peers year-to-date, but the AUD and NOK are still outperforming, thanks to their commodity price exposures and relatively hawkish monetary policy outlooks. That is despite the risk sentiment elsewhere in financial markets, which hasn’t passed through so cleanly in FX. That is also evidenced by the JPY and CHF struggling this month, who are both net importers of energy. USDJPY passed through 160.00 for the first time since 2024 in March, prompting stronger language from the Japanese authorities and resurfacing talk of intervention. Ultimately, FX is left to the mercy of the conflict and energy prices as it stands, with economic fundamentals now essentially out of date for the time being.

Notes: uses an equal-weighted index for each currency against the other nine in the G10
Sources: Bloomberg, Macrobond, Investec

Forecasts

Sources: Macrobond, Bloomberg, Investec

Sources: Macrobond, Bloomberg, Investec

Sources: Macrobond, Bloomberg, Investec

Notes: Forecasts are produced by Investec Economics and are for end-quarter
Chart data as of 10:06 BST, Thursday 2 April 2026