Trump Warns of Hormuz Blockade as Oil Jumps and USD Strengthens

Key Highlight

• Central bank decisions take centre stage today, with the Federal Reserve and Bank of Canada in focus. Markets are particularly sensitive to Powell’s press conference, which is expected to guide near-term USD direction.

• Geopolitical tensions and oil market disruption continue to drive inflation expectations and safe-haven flows into the US dollar.

• Australian inflation data disappointed, reducing the likelihood of an imminent RBA rate hike and easing recent AUD strength.

• UK growth risks are rising, with fresh warnings that an escalation in the Middle East could push the economy towards recession while inflation remains elevated.

Market Recap

The US dollar regained momentum, rising for the first time in three sessions as investors moved back into safe-haven assets. This was driven by a combination of higher oil prices, rising US Treasury yields, and escalating geopolitical risks.

A major catalyst came from the UAE’s decision to exit OPEC and OPEC+, a move that unsettled energy markets at a critical time. Oil prices surged sharply, with Brent crude climbing above $111 per barrel, reinforcing inflation concerns globally. In response, US yields pushed higher, with 2-year Treasury yields reaching multi-week highs above 3.7%.

Currency markets reflected this shift in sentiment:

• GBP weakened, pressured by rising gilt yields and domestic political uncertainty.

• EUR edged lower, despite a notable increase in Eurozone inflation expectations, which are now signalling stronger price pressures ahead of the ECB decision.

• Broadly, G10 currencies lost ground against the USD, highlighting a defensive market tone.

Market Update

Overnight data showed Australian core inflation rising less than expected, prompting a pullback in rate hike expectations. While a hike from the RBA remains likely, the softer data reduces urgency and may lead to some unwinding of bullish AUD positioning.

Geopolitical developments continue to intensify:

• Reports of a potential US naval blockade of the Strait of Hormuz and warnings around sanctions tied to Iranian oil flows are keeping markets on edge.

• These risks are sustaining elevated oil prices and reinforcing inflationary pressures globally.

In the UK, the outlook has become more fragile. The NIESR has warned of a possible recession scenario if geopolitical tensions worsen, with inflation potentially exceeding 5%. This adds complexity ahead of the Bank of England decision, as policymakers balance slowing growth against persistent inflation.

Looking ahead, several key events will shape market direction:

• German CPI will provide an early signal on Eurozone inflation ahead of the ECB meeting.

• The Bank of Canada decision will be watched for guidance on how policymakers are responding to the oil shock.

• The Federal Reserve announcement and Powell’s commentary remain the primary focus for global markets.

With oil prices holding above $100 and multiple high-impact data releases and central bank decisions still to come including BoE, ECB, US GDP, and Core PCE, market volatility is expected to remain elevated through the week.

29th April 2026

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