ING FX Daily - FJElite

Risk assets are rallying as combatants in Iran pull back from the brink. The most impactful news overnight has been Iran's announcement that it will allow safe passage for traffic through the Strait of Hormuz during this ceasefire. Expect now a close monitoring of traffic flow through the Strait, where a significant pick-up in volume would weigh further on oil prices and reverse the stagflationary investment trends witnessed in markets over the last month. These trends had been dominated by the dramatic bearish flattening of yield curves, equity weakness and a stronger dollar.

Don't expect a complete reversal of March trends, however. A good example overnight is the Reserve Bank of New Zealand considering a pre-emptive rate hike in the face of an energy-driven spike in headline inflation. Here, the previously dovish RBNZ revised up its 2Q26 CPI forecast to 4.2% from 2.8%, stating that the outlook had 'materially altered1 and signalling 'decisive and timely' increases in its policy rate should second-round inflation effects emerge. We suspect this tough talk will be a template for many central banks through the second quarter - perhaps one of the reasons why the short-end of the yield curve does not entirely retrace the March sell-off.

Today's Eurozone data includes PPI and retail sales readings for February. These appear unlikely to influence the market, and there is little guidance from European Central Bank speakers this week. More interest is expected next week, with many ECB officials in Washington for IMF meetings. Expect them to continue talking tough about the possibility of a preemptive rate hike, though overnight developments will provide some breathing room.

Elsewhere, one may have expected EUR/GBP to trade slightly higher if Bank of England policy tightening was priced out faster than that of the ECB. Still, EUR/GBP remains above 0.8700 and could find strong support on declines.