Deal or Delay

April 17, 2026

Elias Haddad

Markets in holding pattern ahead of possible weekend peace talks.

No policy-relevant economic data due today.

UK Prime Minister Starmer faces the heat again. GBP and gilts underperform.

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Markets are on standby to see if the April 7 US-Iran ceasefire transitions into a durable agreement or rolled forward. President Donald Trump said that the next meeting with Iran might happen over the weekend, adding “we have a very successful negotiation going on right now.”

Brent crude oil prices are holding under $100 a barrel, stock and bond markets are consolidating recent gains, while USD is trading on the defensive. The MSCI world stock index rose to a record high, long-term sovereign bond yields are modestly lower across major economies, and the dollar recovered yesterday’s losses.

We are sticking to our view that while the energy shock may not be over, the worst is probably behind us. If so, end-March likely marked the bottom in risk sentiment. That would leave DXY (USD index) trading off rate differentials once again, keeping the currency within the middle of its nearly one-year 96.00-100.00 range over the next few months.

Structurally, we maintain our long-held bearish USD view because of: (i) fading confidence in US trade and security policy, (ii) worsening US fiscal credibility, and (iii) the ongoing politicization of the Fed.

Long-term gilts are lagging global peers, while GBP is underperforming EUR. UK Prime Minister Keir Starmer is in the hot seat again after being accused of misleading parliament about whether Peter Mandelson had passed security checks before his appointment as ambassador.

The real test for Starmer’s leadership will be the aftermath of the May 7 local and Scottish elections. Starmer’s Labour Party is poised to get trounced, potentially setting the stage for a leadership challenge. A leadership contest can be triggered if the leader resigns or a challenger secures the backing of at least 20% of Labour MPs.

Starmer is the most unpopular British prime minister since record began, even worse than Liz Truss’s 49-day in office. As such, his exit will not be a big shock to financial markets. The surprise would be if he managed to stay on as prime minister. Regardless, with or without Starmer, the governing Labour Party faces an uphill battle to restore fiscal credibility. UK nominal GDP growth is tracking below 10-year gilt yields, making stopping debt growth very difficult. As such, we expect EUR/GBP to grind higher in line with rate differentials.

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