The Euro rose modestly against the Pound on Friday, moving above 0.8700 at the start of the European session. It was still on course for a small weekly fall, as both currencies pared gains versus the US Dollar while Iran’s ceasefire faltered.
Tehran has threatened to leave the peace process after Israeli attacks killed more than 300 people in Lebanon. US President Donald Trump said Iran had mismanaged traffic in the Strait of Hormuz, writing on Truth Social: “That is not the agreement we have”.
Strait Of Hormuz Disruption
The Hormuz Trail Monitor reported that seven vessels crossed the Strait of Hormuz in the last 24 hours. That equals about 5% of the 140 ships that typically passed through each day before the war, and Iranian authorities were reported to be charging fees for oil tankers.
German data showed the Harmonised Index of Consumer Prices rose 1.2% in March and 2.8% year on year, up from 0.4% and 2.0%. The rise was linked to higher energy prices during the Middle East conflict.
The figures increased expectations of European Central Bank rate rises, possibly in April. The Bank of England was described as taking a “wait and see” approach, with no near-term tightening expected.
A correction dated 10 April at 07:50 GMT stated the year-on-year figure was 2.8% from 2.0%, not 2.7% from 1.9%.
Positioning For Euro Strength
Given the widening policy gap between the European Central Bank and the Bank of England, we should consider positioning for further Euro strength against the Pound. The German inflation print of 2.8% makes an ECB rate hike highly probable, while the BoE remains on the sidelines. We can express this view by buying EUR/GBP call options or futures, anticipating a move towards the 0.8800 level.
This strategy is supported by historical precedent, as we saw similar EUR/GBP strength during the UK’s mini-budget crisis in late 2022 when central bank policies diverged sharply. The current environment mirrors that period of policy uncertainty, suggesting the Euro has a clear advantage. The market is increasingly pricing in a more aggressive ECB, which should continue to fuel this trend.
The primary driver of this inflation and market volatility is the severe disruption in the Strait of Hormuz. With traffic at just 5% of its normal volume, a major energy shock is unfolding, as roughly 20% of global oil consumption passes through this chokepoint. We should therefore establish or increase long positions in crude oil, likely using call options on Brent futures to capitalize on rising prices and volatility.
This geopolitical tension is likely to spill over into broader market fear, making long volatility a sensible strategy. The uncertainty surrounding Iran and potential further escalations means assets could experience sharp, unpredictable moves. We can position for this by buying VIX futures or using options strategies like straddles on major equity indices, which profit from large price swings regardless of direction.
Consequently, European equities, especially in Germany, look vulnerable. The combination of soaring energy costs and the prospect of imminent ECB rate hikes creates a significant headwind for corporate earnings and economic activity. We should consider hedging or initiating short positions on the DAX index through put options or futures contracts.
The hawkish sentiment surrounding the ECB provides a direct opportunity in the interest rate markets. The confirmed German inflation data will likely force the ECB’s hand, possibly as soon as their next meeting. We can trade on this expectation by shorting short-term European interest rate futures, such as Euribor contracts, to profit from rising rates.
