FX Market Watch

The euro added 1.7% against the dollar in April, the smallest advance among majors, reflecting the bloc's larger refined-product import exposure through the Middle East corridor. Draws in European diesel and gasoil inventories – now at multi-month lows – leave the single currency more asymmetric to a prolonged Hormuz closure than its monthly strength implies.

The ECB held the deposit rate at 2.00% and continues to run balance-sheet runoff. The bigger story is the gradual repricing of the euro-area curve toward additional tightening if inflation pressures translate from headline into core. A quicker de-escalation would unlock EUR upside, while a deeper supply shock leaves Frankfurt with a harder trade-off than the Fed.

The yen's modest April recovery was concentrated in the final session of the month, when verbal warnings from the Ministry of Finance against speculative selling were almost certainly accompanied by physical intervention. Speculative short positioning into the move appears lighter than during the 2024 intervention episode, suggesting the rebound may have less staying power.

The BoJ held policy at 0.75% in April, but the 6–3 vote highlights a credible path to a further hike, possibly as early as June. With domestic inflation expectations drifting higher and the 10-year JGB yield breaking out, the policy-fundamental case for yen strength is building – even if energy-driven terms-of-trade pressure keeps near-term price action heavy.

Sterling was the third-best major performer in April, supported by a sharp repricing of the UK rate curve. The 10-year gilt yield closed above 5% for the first time since the run-up to the Global Financial Crisis, and UK 5y5y inflation expectations have widened more aggressively than in either the euro area or the US.

The MPC held the policy rate at 3.75% but the April Monetary Policy Report laid out three scenarios, each implying tightening rather than easing. We see scope for two 25bp hikes by August. Mixed activity data and a sharp collapse in business confidence point to growth risks if the conflict persists, but rate support is currently the dominant driver, consistent with GBP/USD holding above 1.30.

The Aussie was the month's standout performer, with the YoY gain now exceeding 12%. Australia's position as the world's second-largest LNG exporter is delivering a substantial terms-of-trade dividend in the current energy regime, and the 2-year AU–US swap spread has widened to levels historically associated with AUD/USD above 0.70.

The RBA has already delivered two 25bp hikes this year on inflation that has accelerated to 4.6% YoY, well outside the 2–3% target band. Market pricing implies another hike at the 5 May meeting, putting the RBA firmly out of step with most developed-market peers. Until the energy shock fades, the AUD carry profile remains attractive.

The franc strengthened in April but underperformed the broader majors advance, with the resilience of global risk assets dulling its traditional safe-haven appeal. The widening 2-year euro-area-to-Swiss yield gap – up roughly 40bps since the conflict began – has also been a structural headwind.

The SNB has been explicit that it retains policy flexibility, including a potential return to negative rates and renewed FX intervention. The real-effective exchange rate is more than one standard deviation above its five-year average, capping further appreciation absent a sharp risk-off episode.

The Canadian dollar tracked the broader risk-on tone in April, helped by terms-of-trade support from elevated crude. The Bank of Canada held at 2.25% and Governor Macklem indicated a preference for keeping policy close to current settings while monitoring whether energy-driven inflation passes through to broader prices.

With the BoC and the Fed effectively aligned on the wait-and-see playbook, the 2-year US–CA swap spread should remain range-bound, anchoring USD/CAD in a relatively tight corridor. A clean ceasefire would tilt CAD higher; renewed escalation reverses that.

The real broke below 5.00 in April for the first time in over two years, recovering all of the conflict-related drawdown and more. Q1 combined portfolio and FDI inflows were the strongest for any quarter in more than a decade, and crude oil – now Brazil's largest single export – means the energy shock is delivering a meaningful terms-of-trade dividend.

The BCB cut the Selic rate to 14.50% but signalled that further easing will be gradual. With the ex-ante real rate near 10% and inflation risks tilted higher, the carry profile remains compelling. The clearest downside risk is political: the October elections will increasingly drive investor positioning.

The peso strengthened materially in April, retracing some of the year-to-date softness. The macro backdrop is more nuanced than the FX move suggests: Q1 GDP printed a 0.8% QoQ contraction, well below Banxico's projection, and annual growth slowed to 0.1%. Trade-policy uncertainty has visibly hit activity.

Inflation at 4.53% is close enough to target to allow further Banxico easing at the May meeting, but the policy board is divided 3–2 and additional cuts could dent MXN carry attractiveness. We see near-term risks skewed to a USD/MXN rebound if Hormuz escalates further.

The rand recovered most of its conflict-driven losses in April as gold prices rebounded from a sharp pullback and global risk sentiment improved. South Africa was initially one of the most exposed EM currencies given its terms-of-trade sensitivity to both energy and gold. The SARB kept the repo rate at 6.75%.

The rand remains tactically attractive while financial market volatility is contained, but the recovery is conditional on Hormuz de-escalation. A renewed leg higher in oil would compound stagflationary pressures and reopen the SARB's policy dilemma.

A complete dataset of spot levels and MoM, YTD and YoY changes for every covered currency pair is presented below for reference. Source attributions for each pair are in the table footnote.