Investors and forex traders remain focused on developments in the Middle East. On one hand, the diplomatic process has stalled, as the second round of talks in Islamabad was canceled, while Iran and the United States continue blocking the Strait of Hormuz and Iranian ports respectively, periodically reporting the seizure of commercial vessels and keeping tensions elevated across the region. On the other hand, US President Donald Trump has announced that the ceasefire will be extended “for an indefinite period,” and large-scale strikes have not resumed, which is helping to maintain cautious optimism.
Analysts note that markets are hoping the situation stabilizes at its current level rather than escalating into a direct confrontation that would increase the risk of further damage to Gulf oil infrastructure and, as a result, drive up energy prices and slow global economic growth. Investors are also watching the latest Reuters survey of leading economists on the Federal Reserve’s next steps. Most respondents believe the Fed will leave monetary policy unchanged for at least the next six months, as inflation risks remain elevated. Around 70.0% of analysts expect a rate cut by the end of the year, while the rest believe any move is more likely to come at the beginning of next year. They also argue that the appointment of Kevin Warsh as the new Fed chair would not automatically lead to lower borrowing costs, despite pressure from the White House for such a shift. The Fed chair is influential, but still only one of many decision-makers, and convincing the rest of the board to support rate cuts could prove difficult, especially with inflation remaining above the 2.0% target for the past five years.
Eurozone
The euro is losing ground against its main peers — the yen, the pound, and the US dollar.
Preliminary April business activity data released today showed mixed but generally weak results. The manufacturing PMI rose from 51.6 to 52.2, beating the preliminary estimate of 50.9, while the services PMI fell from 50.2 to 47.4 versus expectations of 49.8, slipping into stagnation territory. The composite index declined from 50.7 to 48.6, confirming broader economic slowing. A similar picture is emerging in Germany, the EU’s largest economy: manufacturing PMI fell from 52.2 to 51.2, slightly below expectations of 51.4, while services PMI dropped from 50.9 to 46.9 against a forecast of 50.4. The composite index fell from 51.9 to 48.3 instead of the expected 51.1. Analysts say instability linked to the renewed Middle East conflict has hurt demand for services while supply has also weakened, distorting pricing conditions. Market participants are also digesting the latest Reuters survey on the European Central Bank. Most economists expect the ECB to keep policy unchanged at its April 30 meeting, but to cut rates by 25 basis points in June. Beyond that, views diverge: some expect one more cut before year-end, while others believe the next move may not come until next year.
United Kingdom
The pound is strengthening against the euro and showing mixed performance against the yen and the US dollar.
Today’s preliminary April business activity data came in stronger than expected. In manufacturing, the index rose from 51.0 to 53.6 against a forecast of 50.3, while the services PMI improved from 50.5 to 52.0 compared with expectations of 50.0. The composite index advanced from 50.3 to 52.0, even though forecasts had suggested a decline to 49.8. Overall, the UK economy showed resilience despite the crisis environment. Even so, analysts remain cautious. They warn that conditions could deteriorate again and note that the current rebound may have been driven largely by a temporary rush in production, as companies tried to manufacture and sell as much as possible ahead of a potential downturn caused by rising fuel costs and supply disruptions in components and raw materials.
Japan
The yen is losing ground against the US dollar, strengthening against the euro, and showing mixed performance against the pound.
April business activity data remain in focus. In manufacturing, the index climbed from 51.6 to 54.9 against a preliminary estimate of 51.1, while the services PMI eased from 53.4 to 51.2. The composite index slipped from 53.0 to 52.4, but by less than expected, as forecasts had pointed to 51.4. This creates conditions for tighter monetary policy from the Bank of Japan, and most analysts now expect that a move could come as early as the June meeting.
Australia
The Australian dollar is weakening moderately against its major peers — the yen, the euro, the pound, and the US dollar.
Markets are assessing preliminary April business activity data: the manufacturing index improved from 49.8 to 51.0, the services index rose from 46.3 to 50.3, and the composite reading advanced from 46.6 to 50.1. The Australian economy is showing resilience despite geopolitical and energy-related pressures, and together with persistently high inflation this may strengthen the case for the Reserve Bank of Australia to maintain a hawkish policy stance. Traders are currently pricing in a 68.0% probability of a rate change at the May meeting.
Oil
Oil prices are making moderate gains today, supported by ongoing uncertainty in the Middle East. The ceasefire between Iran and the United States remains in place, but diplomatic consultations are on hold, while the Strait of Hormuz is still blocked, continuing to disrupt crude supplies to the market. Additional support came from the US Energy Information Administration (EIA) report published yesterday, which showed crude inventories rising by 1.925 million barrels, while gasoline stocks fell by 4.570 million barrels and distillates dropped by 3.427 million barrels.
It is also worth noting the latest comments from International Energy Agency chief Fatih Birol. In an interview with CNBC today, he reiterated his view that the world is facing serious energy security problems that are resulting in the loss of 13.0 million barrels of oil supply per day.
