Dollar Firms on US-Iran Flare-Up; Sterling Eyes the Vote Count
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US-Iran hostilities are back. So is the dollar. Renewed friction and surging oil prices pulled the greenback off a two-month low. Sterling heads for its first weekly loss since March as UK local election results trickle in. The euro holds steady despite energy risks and a hawkish ECB. Focus now turns to US payrolls and inflation data.
GBP: The Gilt Gavel and Local Trials
GBPUSD 1.3571 | EURGBP 0.8646
Sterling slid to $1.3571, eyeing its first weekly loss since March as the dollar found its footing. Domestic nerves also play a part; local election results loom over the pound like a heavy shroud.
Geopolitics drives the immediate bid for the Greenback, but British politics dictates the local mood. Fears surrounding Prime Minister Keir Starmer’s leadership are influencing the gilt market.
Gilts already face scrutiny on inflation grounds. Political uncertainty on top of that gives investors in overseas markets reason to look elsewhere to avoid the fallout of political instability. The gilt sell-off risk is structural, rather than speculative, feeding directly into sterling's fragility here.
Furthermore, Halifax house prices dipped 0.1% MoM in April, bang in line with consensus and a modest improvement on the prior -0.5%. The annual figure eased slightly to 0.4% (3-month YoY) from 0.8% previously. A number that meets expectations to the decimal point rarely shifts a currency, but in this context, it confirms that the property market is not providing any fresh tailwind for sterling. This stagnation also signals that inflationary pressures might be cooling, potentially softening the Bank of England's (BoE) stance.
Early English council counts show Reform picking up seats and Labour taking losses. The majority of counting in Scotland and Wales has yet to begin, so the full picture would likely sharpen over the weekend.
EUR/GBP has found support at 0.8620 but has not pushed through resistance at 0.8650. The pair is essentially directionless until one of these two stories, UK politics or ECB tone, provides a cleaner catalyst.
On Tuesday, the British Retail Consortium (BRC) releases April like-for-like retail sales, which could offer the next read on UK consumer resilience. A strong reading could provide some relief, but the political noise will likely dominate sentiment into the early part of next week.
Currency volatility has picked up again across sterling pairs as energy prices, rate expectations, and politics pull in different directions.
Key Technical levels for the GBP/USD pair: Resistance sits at 1.3600, 1.3655 and Support sits at 1.3520, 1.3475
Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8650, 0.8680 and Support sits at 0.8620, 0.8585
EUR: Hawkish Echoes Amidst Industrial Slump
EURUSD 1.1735
The euro held steady at $1.1735 and looks set to close the week marginally firmer. That steadiness is doing a bit of heavy lifting because the European Central Bank (ECB)'s own board is starting to sound considerably less comfortable.
ECB Executive Board Member Isabel Schnabel, speaking at the Goodhart Lecture in London, flagged that oil price shocks now feed through faster than they did in 2021. A broader energy shock, she said, would require tighter policy to contain the risk of second-round effects. She also noted that sovereign debt concerns could constrain monetary policy at higher rates, threatening fiscal sustainability in some Eurozone economies. Her conclusion: the risk of policy tightening has increased in recent weeks.
A divergence is forming between sluggish data and hawkish rhetoric. Eurozone retail sales for March came in at -0.1% MoM against a consensus and a prior reading of -0.3%. On an annual basis, the figure printed at 1.2% v/s a 1.0% consensus. A modest beat, though better than feared, not quite the cause for celebration.
Germany's industrial production data disappointed. German industrial production fell 0.7%, missing expectations. While the trade balance for March came in at €14.3 billion, well below the €18.4 billion consensus and a significant drop from €19.5 billion the month before. The surplus is narrowing, and the trend raises questions about the export engine that has historically underwritten Eurozone stability. This "higher for longer" stance clashes with a weakening German industrial engine, creating a volatile tug-of-war over the single currency.
In summary, the euro faces a structural squeeze: hawkish ECB commentary offers some support, but persistent industrial weakness continues to impose a ceiling.
On Tuesday, Germany's CPI and HICP releases are due, alongside the ZEW survey current situation and economic sentiment readings for May, for both Germany and the Eurozone. The ZEW figures will be particularly closely watched by investors, given the shift in ECB rhetoric this week.
Key Technical levels for the EUR/USD pair: Resistance sits at 1.1760, 1.1800 and Support sits at 1.1685, 1.1630
USD: Dollar Slips as Risk Appetite Builds
DXY 98.09
The dollar index steadied at 98.17 after renewed US-Iran hostilities pulled it back from a two-month low reached earlier in the week. Hopes for a peace deal had briefly weighed on the dollar; those hopes are now recalibrated.
US and Iranian forces exchanged fire on Thursday, piling fresh pressure on a fragile month-long ceasefire. Iran is reviewing Washington's proposals to end the conflict. The path to a lasting agreement is non-linear, and currency participants who had begun pricing in normalised vessel flows through the Strait of Hormuz are now rethinking those assumptions. WTI Crude futures rose as much as 3% in early trading.
A US Court of International Trade ruled that the Trump administration's 10% temporary global tariffs are unjustified under a 1970s trade law, specifically Section 122. Although a swift appeal is expected, it will likely have only a limited practical impact on overall US tariff levels. The ruling caused no meaningful dollar move.
Treasury yields tracked crude higher through Thursday on inflation concerns. The benchmark 10-year yield held at 4.39% on Friday, moving little with the dollar.
The week's US jobs data has been constructive at the margin. Initial jobless claims came in at 200k, below the 205k consensus and the prior 190k. The four-week average declined to 203.25k from 207.75k, reflecting that the US labour market is not cracking.
US NonFarm payrolls are due later today. Consensus looks for a gain of 62,000 in April after a 178,000 rebound in March. An in-line number probably changes little. A significantly weak print is the scenario traders are watching for because that is the outcome that could genuinely move the dollar.
Other Pairs: Yen, Antipodeans, and the Yuan
AUDUSD 0.7223 | NZDUSD 0.5948 | USDJPY 156.84 | GBPJPY 212.90
The Japanese yen held at around 156.85, closing the week on a broadly steady footing. Tokyo's top currency diplomat reinforced the intervention message this week: Japan faces no constraints on the frequency of currency market interventions and is in daily contact with US authorities. That language keeps sharp yen selling at bay.
But the structural picture is unchanged. Elevated energy prices and rising global yields work against the yen. Intervention can act as a harness, but it cannot pull the currency to safety while macro conditions remain unfavourable. The Bank of Japan's resolve will likely continue to be tested.
The Aussie dollar held at $0.7223 and the New Zealand dollar at $0.5948. Both posted winning weeks on improved risk appetite in earlier days. The positive tone in Asian equity markets provided the backdrop, driven by gains in AI-linked chipmakers earlier in the session. Though both antipodean currencies slipped slightly from session highs as the US-Iran news weighed on risk.
China's yuan is on the cusp of pushing through 6.80 to the dollar, Asia's best-performing currency since the conflict began. The yuan now sits near its strongest level since 2023.
On Tuesday, Australia releases its federal budget. Investors will be watching this for fiscal signals and any potential read-through to RBA policy expectations.
Current Rate Table:
| Pair | Level | Trend |
|---|---|---|
| GBPUSD | 1.3571 | Bearish bias below 1.3600 |
| EURGBP | 0.8646 | Rangebound with upside pressure |
| EURUSD | 1.1735 | Supported above 1.1700 |
| DXY | 98.17 | Recovering from recent lows |
| AUDUSD | 0.7223 | Bullish while above 0.7180 |
| NZDUSD | 0.5948 | Stable with mild upside |
| USDJPY | 156.84 | Yen under pressure |
| GBPJPY | 212.90 | Elevated volatility |
Market Lookahead
Fri, 08 May
- UK Local Election results
- US Non-Farm Payrolls (April)
Tue, 12 May
- UK BRC Like-for-Like Retail Sales
- Germany CPI & HICP (April)
- Eurozone & Germany ZEW Economic Sentiment & Current Situation (May)
- US CPI (April)
- Australia Budget release
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