Dollar weakness has returned despite still-high energy prices

GBPUSD and EURUSD are defying gravity.

March saw currency performance heavily correlated with their respective exposure to energy prices, yet that playbook has somewhat been thrown out of the window. Brent crude still trades near $100/barrel, and traffic through the all-important Strait of Hormuz remains at a near standstill. However, GBPUSD has risen above its pre-conflict level, and EURUSD isn’t too far behind. The AUD and NOK continue to build on their gains, so it’s not as if all commodity-driven moves have reversed, but there are certainly different factors at play for the US dollar.  

UK local elections loom for sterling.

The pound has been relatively resilient in recent weeks despite the lingering political risk. Prediction markets see a 71% chance of a change of Prime Minister by end-year, and there’s no clear replacement candidate. Still, GBPEUR has climbed back toward the top of its recent channel, finding resistance at 1.1600 yet again. Our economists are more doubtful of sterling optimism in the near-term though, and forecast the pound to lose ground versus both the euro and the USD in the coming months, on account of that fresh injection of political uncertainty.

Notes: Axis inverted for UST yields and Brent crude; intraday highs/lows omitted.
Sources: Investec, Macrobond, Bloomberg

Dollar sentiment is turning sour again.

It’s true that the Federal Reserve looks less likely to raise interest rates than its peers in the coming months, owing in part to the upcoming change in Chair, but interest rates don’t feel to be a primary driver as it stands. Instead, 2025’s signature dollar bearishness seems to be returning. One avenue of thinking is that the conflict in the Middle East is yet another example of uncertainty stemming from US policy action, which markets have increasingly sought to disassociate with US equities, which continue to hit all-time highs. On the assumption that the conflict ends in the near-term, our economists now look for EURUSD to return to 1.2000 in Q4 2026. 

Japanese authorities intervened to support the yen. 

While the dollar lost ground to most of its G10 peers, USDJPY held around the 160.00 level before popping above it late last month to a 21-month high. Japanese authorities promptly issued warnings and soon after stepped in to sell an estimated USD 34bn on 30 April to send USDJPY more than 3.00% lower. At the other end of the G10 league table, despite the intervention the Aussie dollar’s continued climb means that AUDJPY is more than 30% higher than its April 2024 low. Meanwhile, EURJPY hit a new record high in April, and is only a touch lower now. There’s still work to be done for a material change of fortune for the yen, which will continue to garner attention as this month goes on.

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 14:46 BST, Wednesday 6 May 2026