Currency markets experienced heightened volatility on Friday as traders reacted to the upcoming US-Iran negotiations in Pakistan, which have boosted risk sentiment and overshadowed key economic data releases. GBP/USD climbed 0.20% to 1.3461, supported by optimism surrounding Middle East peace talks and a softer US core CPI reading, while USD/CAD reversed earlier losses and traded around 1.3833, heading for its first weekly decline after two weeks of gains [1][2].
US inflation rose sharply in March, with the Consumer Price Index (CPI) increasing by 3.3% year-over-year, up from 2.4% in February, matching market expectations. The monthly CPI rose 0.9%, accelerating from 0.3% previously [1][2]. Core CPI ticked up from 2.5% to 2.6% YoY, missing estimates of 2.7% [1]. Despite the inflation surge, investors remain confident that the Federal Reserve will not lower borrowing costs this year, as indicated by Prime Market Terminal data [1]. The US Dollar Index (DXY) fell to 98.66–98.70, marking its biggest decline since January and nearing four-week lows [1][2].
Geopolitical developments are at the forefront, with Iran’s Parliament Speaker Mohammad Bagher Ghalibaf stating that a ceasefire in Lebanon and the release of Iranian blocked assets must be secured before negotiations can proceed [2]. US President Donald Trump told The New York Post that US warships are being reloaded with "the best ammunition" to resume strikes on Iran if peace talks fail [2]. The University of Michigan Consumer Sentiment plunged to a record low of 47.6 in April, down from 53.3 in March, as the Iran conflict pushed gasoline prices to $4 per gallon and raised inflation expectations [1].
In Canada, employment rebounded by 14.1K in March, recovering from a sharp decline of 83.9K in February, though slightly missing expectations of a 15K increase. The unemployment rate held at 6.7%, below expectations of 6.8%. The Bank of Canada kept rates steady at 2.25% and is expected to remain cautious amid the recent oil-driven inflation shock [2]. In the UK, expectations for Bank of England rate hikes in 2026 increased from 32 to 42 basis points of tightening towards year-end, according to LSEG data [1].
Looking ahead, traders will monitor Britain's Retail Sales and GDP figures, speeches by BoE Governor Andrew Bailey, US housing data, PPI, jobs data, and Fed speakers [1]. Technical analysis shows GBP/USD holding a bullish bias above key moving averages, though not yet signaling a full trend reversal [1].
CONCLUSION
The upcoming US-Iran talks in Pakistan have injected volatility and optimism into currency markets, with risk sentiment improving despite elevated inflation and geopolitical uncertainty. While the US Dollar weakened and GBP/USD and CAD strengthened, central banks are expected to maintain cautious stances as traders await further economic and geopolitical developments. The durability of the ceasefire and the outcome of negotiations remain key factors for market direction.