The euro fell in European trading on Monday against a basket of global currencies, continuing its losses for the third consecutive day against the US dollar. This decline comes as investors focus on buying the US currency as a preferred safe-haven asset amid escalating fears of the Iran war intensifying, as they await the final deadline set by US President Donald Trump to reopen the Strait of Hormuz.

With eurozone inflation exceeding the European Central Bank's medium-term target due to high energy prices, the probability of at least one European interest rate hike this year has increased, pending the release of further crucial economic data in Europe.

Price Overview

Euro exchange rate today: the euro fell about 0.1% against the dollar to $1.1505 from the session opening level of $1.1514, after reaching a high of $1.1525.

The euro ended Friday’s session down more than 0.2% against the dollar, marking its second consecutive daily loss due to developments in the Iran war.

US dollar

The dollar index rose more than 0.1% on Monday, maintaining gains for the third consecutive session and reflecting the continued strength of the US currency against a basket of global currencies.

The rally is driven by investors focusing on the US dollar as a preferred safe-haven asset amid rising fears of the Iran war escalating, especially following the recent threats from US President Donald Trump.

Strong labor market data released in the United States on Friday reduced the likelihood of the Federal Reserve cutting interest rates in the near term, as markets await further crucial economic data on inflation and consumer spending levels.

Iran war updates

• Trump vows that Iran will face "hell" by Tuesday if the deadline to open the Strait of Hormuz is not met.

• Axios: Iranian mediators are making last-ditch efforts to reach a 45-day ceasefire.

• Axios: Sources report that the chances of reaching a partial agreement within the next 48 hours are slim.

European interest rates

ECB President Christine Lagarde said the bank is prepared to raise interest rates even if the expected rise in inflation is short-term.

Data released last week showed that eurozone inflation exceeded the European Central Bank's target, reaching 2.5% in March as energy prices rose.

Following this data, money market pricing for the probability of the European Central Bank raising interest rates by 25 basis points in April increased from 30% to 35%.

Sources told Reuters that the European Central Bank is likely to begin discussing interest rate hikes during this month's meeting.

To reassess these probabilities, investors are awaiting the release of more economic data from the eurozone regarding inflation, unemployment, and wages.

The Japanese yen fell in Asian trading on Monday against a basket of major and minor currencies, resuming its losses against the US dollar and approaching the ¥160 threshold. This decline comes as investors focus on buying the US dollar as a preferred safe-haven asset amid escalating fears of the Iran war intensifying, as markets await the final deadline set by US President Donald Trump to reopen the Strait of Hormuz.

With inflationary pressures easing for policymakers at the Bank of Japan, the probability of a Japanese interest rate hike in April has declined, as investors wait for further economic data from Japan.

Price Overview

Japanese yen exchange rate today: the US dollar rose 0.2% against the yen to ¥159.83 from Friday’s closing price of ¥159.51, after hitting a session low of ¥159.47.

The yen ended Friday’s session up less than 0.1% against the dollar, marking its first gain in three days amid fresh warnings from the Japanese Finance Minister regarding excessive currency movements in the foreign exchange market.

Supported by continuous warnings from Japanese monetary authorities, the yen gained 0.45% against the dollar last week, marking its second weekly gain in three weeks.

US dollar

The dollar index rose more than 0.1% on Monday, maintaining gains for the third consecutive session and reflecting the continued strength of the US currency against a basket of global currencies.

The rally is driven by investors focusing on the US dollar as a preferred safe-haven asset amid rising fears of the Iran war escalating, especially following the recent threats from US President Donald Trump.

Iran war updates

• Trump vows that Iran will face "hell" by Tuesday if the deadline to open the Strait of Hormuz is not met.

• Axios: Iranian mediators are making last-ditch efforts to reach a 45-day ceasefire.

• Axios: Sources report that the chances of reaching a partial agreement within the next 48 hours are slim.

Japanese authorities

Japanese Finance Minister Satsuki Katayama issued a new warning to currency traders on Friday, confirming the government's readiness to act against speculation in the foreign exchange markets given the significant rise in volatility recently.

Katayama said during a regular press conference that there is a rise in speculation in both the crude oil futures and foreign exchange markets, and that volatility has increased significantly.

Katayama added that since exchange rate fluctuations resulting from these developments affect the livelihoods and economy of citizens, the government is fully prepared for a comprehensive response on all levels.

Japanese interest rates

Data released last week in Japan showed a slowdown in Tokyo core inflation during March, the latest indicator of easing inflationary pressures on Bank of Japan policymakers.

Following this data, the market pricing for the probability of the Bank of Japan raising interest rates by a quarter point at the April meeting fell from 25% to 15%.

To reassess these probabilities, investors are awaiting the release of more data on inflation, unemployment, and wages in Japan.

Oil markets are bracing for the possibility of a historic price surge, with prices potentially rising to between $150 and $200 per barrel if the Strait of Hormuz remains partially closed through mid-May, according to warnings from JPMorgan and other institutions.

During Thursday’s trading, US West Texas Intermediate crude jumped above Brent to settle at $112 per barrel, while Brent crude ended the week near $109 per barrel.

Sharp decline in shipping activity

Shipping traffic through the Strait of Hormuz has dropped sharply since early March, with Iran currently allowing only a limited number of vessels to pass.

Even if full transit resumes immediately, it could take three to six months for production and refining supply chains to return to normal.

In an effort to reopen the strait, the United Kingdom hosted a virtual meeting this week involving more than 30 countries aimed at ensuring safe passage and preventing Iran from imposing transit fees.

So far, however, there are no clear signs of a reopening.

The $200 scenario

Energy consultancy FGE NexantECA warned that prices could surge to $200 per barrel if the strait remains largely closed for another six weeks. Another forecast suggested prices could reach a record $200 if the Gulf conflict continues through June.

Analysts had already warned shortly after the US, Israeli, and Iranian attacks began on February 28 that the war could push oil above $100 per barrel.

On March 9, Brent — the global oil benchmark — approached $120 per barrel and has not fallen below $100 since March 13.

An Israeli strike on Iran’s South Pars gas field on March 18, followed by Iranian attacks on oil and gas facilities in Qatar, Saudi Arabia, and the UAE, pushed prices higher again, above $108 per barrel.

A fifth of global oil passes through the strait

Most analysts agree that prices could climb further if the Strait of Hormuz — which carries about one-fifth of global oil supply in peacetime — remains effectively closed in the coming weeks.

The main disagreement lies in the scale of the potential increase.

Vandana Hari, founder of Vanda Insights, said some Middle Eastern crude grades such as Oman and Dubai have already surpassed $150, putting $200 within reach, even if Brent or WTI have not yet reached that level.

She added that the extent of the price surge will depend almost entirely on how long the strait remains closed.

Near-total halt in shipping

After Iran announced the closure of the strait at the start of the conflict and threatened to target any vessels attempting to pass, shipping traffic has nearly come to a halt.

US President Donald Trump has so far failed to rally international support for a naval convoy to reopen the strait, while several countries are seeking bilateral arrangements with Iran to secure safe passage for their vessels.

In recent days, only a limited number of ships have been allowed through, most flying the flags of India, Pakistan, Turkey, and China.

Global supply shortfall

Despite commitments to release 400 million barrels from emergency oil reserves in coordination with the International Energy Agency, these volumes are insufficient to fully offset the disruption in shipments through the strait.

A research unit at Singapore’s OCBC Group estimates the global market is facing a daily shortfall of around 10 million barrels, even with the use of reserves.

Less than three weeks into the conflict, market participants are increasingly taking seriously the possibility of prices exceeding $150 and potentially reaching $200 per barrel.

Fereidun Fesharaki, chairman emeritus of FGE NexantECA, said prices could rise to $200 or higher if the strait remains largely closed.

He added that while markets are partly driven by sentiment and Trump’s social media comments, the reality is that around 100 million barrels of oil are not passing through the strait each week — equivalent to 400 million barrels per month.

He warned that these losses would become increasingly significant over time.

A “world without Hormuz” scenario

The firm also expects the International Energy Agency may need to release additional strategic reserves by mid-April and possibly again in June.

It added that a “world without the Strait of Hormuz” is becoming a realistic scenario that could last for months, potentially forcing structural changes in energy markets, supply chains, and global trade.

Fesharaki warned that such a scenario could trigger a global economic shock, with a severe recession lasting for years.

Warnings from other institutions

FGE NexantECA is not alone in warning about $200 oil.

Analysts at Macquarie Group said prices could reach a record $200 per barrel if the Middle East conflict persists throughout the second quarter.

Wood Mackenzie analysts also suggested Brent could soon hit $150, with $200 “not out of the question” by 2026.

Iran itself has hinted at such levels, with a military spokesperson warning last week that the world should “prepare” for prices reaching $200.

Severe global economic consequences

Experts warn that oil prices at $150 or higher would place a heavy burden on the global economy.

The International Monetary Fund estimates that a sustained 10% increase in oil prices raises global inflation by about 0.4% and reduces economic growth by around 0.15%.

Brent’s historical peak was $147.50 per barrel during the 2008 financial crisis — equivalent to roughly $224 in today’s dollars.

Energy expert Adi Imsirovic of the University of Oxford said $200 oil would act as a “strong brake” on the global economy, noting that such a scenario is entirely plausible.

He added that it would impact inflation, growth, and employment, and could also lead to shortages in fuel and materials such as fertilizers and plastics.

More moderate views

Some analysts, however, see the $200 scenario as overstated.

Sasha Voss, an energy markets analyst at Marex in London, noted that increased production from countries such as the United States, Canada, Argentina, Brazil, and Guyana — along with alternative supply routes like Saudi Arabia’s East-West pipeline — could help ease pressure.

She added that the experience following the Russia-Ukraine war showed that higher prices tend to trigger increased production elsewhere.

The role of demand destruction

While price direction will largely depend on shipping flows through the Strait of Hormuz, broader supply-demand dynamics will also play a role.

At sufficiently high price levels, consumers begin to reduce consumption — a phenomenon known as demand destruction.

Although oil demand is less elastic than most commodities due to limited substitutes, prices may begin to retreat after surpassing certain thresholds.

Bob McNally, president of Rapidan Energy Group, said no one knows the exact level at which this effect kicks in, but it could be above the previous peak of $147 per barrel.

Economist Gregor Semieniuk of the University of Massachusetts Amherst added that price outcomes will depend on how quickly two opposing forces interact: buyers willing to pay any price for reduced volumes versus those exiting the market as prices rise and demand weakens.

The British pound posted another bearish week, marking a second consecutive weekly decline for the GBP/USD pair, with geopolitical concerns — rather than domestic factors — acting as the primary driver. At present, market participants do not expect the Bank of England to resume rate cuts this year; instead, markets are pricing in around 50 basis points of tightening by year-end.

Supported by rates, but fragile underneath

Sterling has shown a reasonable degree of resilience recently, but the underlying picture appears more fragile.

On the surface, the move seems justified, as markets have sharply repriced expectations for Bank of England policy — shifting from anticipating rate cuts to the possibility of further tightening. This shift has provided strong support for the pound, helping it outperform most G10 currencies, with the exception of the US dollar and commodity-linked currencies.

However, this support is largely driven by a single factor.

Interest rates are the primary driver

The pound’s resilience is largely a rate-driven story.

UK short-term bond yields have moved sharply higher, as markets quickly abandoned easing expectations and shifted toward the possibility of additional tightening. Inflation risks — particularly those stemming from rising energy prices — have taken center stage.

This repricing has helped stabilize sterling, even as the broader macroeconomic backdrop remains far less convincing.

And herein lies the key issue: much of this support now appears to be already priced in.

A less comfortable macro backdrop

Looking at the broader picture, the UK economy still appears vulnerable.

Growth was already relatively weak before the latest geopolitical shock, and the economic mix is now tilting more clearly toward a stagflationary scenario, with inflationary pressures rising again while economic activity slows and the labor market begins to soften.

At the same time, familiar structural concerns have resurfaced, including the UK’s current account deficit and the economy’s sensitivity to higher borrowing costs.

This is where things become more complicated. While higher short-term interest rates typically support a currency, rising long-term yields tell a different story. The recent increase in UK gilt yields reflects growing concerns about fiscal sustainability and funding costs — factors that have not historically supported the pound.

Positioning improves, but lacks conviction

Investor positioning also plays an important role. Speculative accounts have clearly reduced bearish bets on sterling, with net short positions narrowing over the past three weeks. However, price action has not strongly confirmed this shift, with GBP/USD trading around the 1.3300–1.3400 range without meaningful upside.

This combination is telling. What we are seeing appears more like gradual short covering rather than the establishment of genuine bullish positions. Investors are stepping back from negative bets but have yet to commit to long-term long positions.

Declining open interest reinforces this view, indicating position reduction rather than fresh inflows.

The conclusion is relatively clear: positioning has become less negative, but not yet positive. If prices fail to follow through with stronger gains, this adjustment could lose momentum — especially if economic conditions deteriorate or the US dollar strengthens further.

Energy and political risks in the background

In the background, two key risks are gradually building.

The first is energy. Prices are expected to rise, as the UK imports more than it exports, complicating the balance between inflation and growth and keeping stagflation risks elevated.

The second is political. With UK elections approaching, political noise is likely to intensify. Any shifts in expectations around fiscal policy or political leadership could quickly impact gilt markets — and, by extension, the currency.

What comes next for GBP/USD?

Base case: range-bound with a slight downside bias

The pair is likely to continue trading within the 1.3200–1.3500 range, with a mild downside bias. While the repricing of Bank of England policy continues to provide some support, its momentum is beginning to fade as markets question how far tightening can go in a weak growth environment. Meanwhile, the US dollar remains relatively firm.

Bullish scenario: requires a clear catalyst

A meaningful upside move would require a shift in conditions. The dollar could weaken if US data comes in softer than expected or if the Federal Reserve signals a more dovish stance. This could allow the pair to break above 1.3500. Stabilizing energy costs or an improvement in global risk sentiment could also help, potentially turning improved positioning into sustained long accumulation.

Bearish scenario: risks skew to the downside

The downside path appears more straightforward. If the dollar continues to strengthen, geopolitical tensions escalate, or UK gilt markets come under further pressure, the pound could weaken. A sharper economic slowdown or rising fiscal concerns could push the pair toward the 1.3000–1.3100 range, particularly if bearish positioning begins to rebuild.

What to watch

The most immediate driver remains the trajectory of the US dollar, particularly through interest rate movements and Federal Reserve policy expectations. Other key factors include oil price dynamics, developments in the Middle East conflict, volatility in UK gilt yields, and incoming UK economic data — especially on growth and the labor market.