April was dominated by a sharp reassessment of currency risk after the US and Iran agreed a ceasefire and outlined terms to reopen the Strait of Hormuz. Markets moved quickly to price out the most severe escalation risk, which supported risk assets and pushed the US dollar back towards pre-war levels against other major currencies.
Currency markets improved because the immediate threat looked lower, not because the underlying risks had been fully resolved. The Strait of Hormuz remained closed during April, negotiations made limited progress and energy supply conditions were still tight. That makes market positioning vulnerable if the ceasefire weakens, talks stall or shipping access takes longer to restore.
Crude prices came down from their highs but stayed above pre-war levels. Strategic reserves and alternative supply helped soften the initial shock, but signs of pressure became clearer during the month. Rationing in parts of Asia and warnings from European airlines about possible disruption from May showed that energy supply risk was still feeding into the wider economic outlook.
That matters for currencies because higher energy costs can keep inflation elevated and complicate central bank decisions. After the war began, markets initially priced in more rate increases as investors expected policymakers to respond to renewed inflation pressure. By the end of April, expectations were still more hawkish than before the conflict, but central banks themselves were careful. The Federal Reserve, European Central Bank, Bank of England and Bank of Japan all left interest rates unchanged.
Inflation risk has risen, but so has uncertainty around growth and demand. European central banks suggested they could raise rates in the summer if inflation remains high. The Federal Reserve was less aggressive, although internal divisions became more visible. Three Fed presidents opposed further cuts, signalling that the central bank may be closer to pausing than its formal guidance suggests.
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