FX Daily: Back to escalation in Daily Currencies Ratings 02/04/2026 USD: Return to risk-off sentiment supports the US dollar again USD‑bearish trades gathered further momentum yesterday on optimism around a potential Middle East de‑escalation. However, it didn’t get far after a new wave of escalation in US President Donald Trump’s speeches to the nation indicated more weeks of fighting, returning a risk-off sentiment to the market today and reversing most of the recovery from the last two days. President Trump said Iran has requested a ceasefire, though he stressed this would be contingent on the reopening of the Strait of Hormuz. This marks a shift in Trump’s narrative relative to recent days, when he had suggested a willingness to distance the US from decisions surrounding the Strait’s fate. We’ll hear from the Federal Reserve’s Lorie Logan and Michelle Bowman today, but Monday’s dovish-leaning comments by Chair Jerome Powell will continue resonating loudly with markets. Tomorrow’s non-farm payrolls can have decent impact potential. They won’t be telling us too much about the war’s impact on jobs yet, but they could shed more light on the state of the labour market amid the shock, which could materially steer the Fed’s assessment at this stage. Yesterday’s ADP payrolls were stronger than expected at 62k, and the ISM manufacturing employment index was almost unchanged at 48.7 in March. Consensus for the NFP is 65k, our macro team’s call is 60k and the Bloomberg whisper number is now 40k. We agree with consensus that unemployment will remain at 4.4% – any material jump here can have an outsized impact. Watch for reduced liquidity conditions tomorrow and Monday due to the Easter holidays. Francesco Pesole EUR: Back to 1.150 levels on a wave of lost hope With the conflict re-escalating and oil prices well above $100/bbl again, EUR/USD sees another dip back well above 1.160 and reaching 1.150 this morning, not far from local lows. It’s worth noticing that CFTC data suggests a neutral speculative positioning on EUR/USD as of 24 March, as opposed to stretched net-longs earlier in March. Other things equal, it suggests better sustainability of a EUR rally if we see any de-escalation over the weekend. Ultimately – as stressed yesterday – the European Central Bank’s stance during this de-escalation phase remains key for the euro. Markets are tempted to unwind tightening bets further, but the ECB’s hawkish rhetoric may prevent pricing from falling below two hikes (now 67bp) unless policymakers signal some flexibility towards a more dovish rhetoric. If that doesn’t happen, the euro could emerge as an outperformer in the coming days. Francesco Pesole GBP: A rate protest from Andrew Bailey Bank of England Governor Andrew Bailey appeared to deliver a rate protest in an exclusive interview with Reuters yesterday. He emphasised that markets were ‘getting ahead of themselves’ in pricing a series of rate hikes this year. The surge in short-dated UK rates during this Middle East crisis, fuelled by what was perceived as a very hawkish MPC meeting on 19th March, has clearly damaged both business and consumer confidence. A key takeaway from yesterday’s interview was that the BoE should fulfil its remit in a way that causes the least damage to the economy and the people. We saw a more than 100bp rise in two-year swap rates last month, and the BoE’s role in that spike is clearly an issue. Whether Governor Bailey is successful in putting the hawkish genie back