The Pound's Path Splits 3 Ways on Crucial Hormuz Deadline

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We grade the most and least likely outcomes and the FX market reactions.

Markets are nervous as a major moment in the Iran war nears.

1:00 AM BST is the deadline for Iran to reopen the Strait of Hormuz.

Trump woke up Tuesday and said on social media, "a whole civilisation will die tonight" if Iran doesn't open the Strait of Hormuz, which Iran has effectively blockaded. "We will find out tonight, one of the most important moments in the long and complex history of the World," he added.

Iran thus far gives no indication it will comply.

We see three scenarios and foreign exchange market outcomes:

1) Escalation: The U.S. proceeds with a massive escalation in its military campaign against Iran, this sends oil and the dollar sharply higher.

GBP/USD responds by falling below 1.3160 and EUR/USD goes to 1.1450 in relatively short order. GBP/EUR should be more insulated, but will likely deflate further in sympathy with recent trends.

With GBP facing a range of potential outcomes, some may prefer to plan rather than predict, using expert guidance to structure their transfer across different scenarios: explore how to manage your currency transfer with specialist support.

"The ultimatum introduces a rare, time-bound geopolitical trigger with immediate global market implications. Markets are behaving as if this is background noise. A fixed, public deadline from the US president creates a binary outcome within hours," says Nigel Green, CEO of deVere Group.

With downside risks in play, delaying a transfer can lead to a weaker outcome, meaning securing a rate earlier can help protect the value of your international payments.

2) Iran caves: Here Iran agrees to the U.S. terms and there's a rapid de-escalation that sends oil prices plummeting. GBP/USD and EUR/USD rebound strongly. Again GBP/EUR proves a harder read, but we suspect global 'risk-on' sentiment would help it rise.

But, this is the least likely scenario as Iran simply hasn't given an inch since the conflict started.

3) Status quo continues. This is the most likely scenario.

Does Trump really want to end Iranian civilisation? We strongly doubt it. Precedent suggests he is not keen on attacks on civilian and Iran's energy infrastructure. Precedent also shows "Trump always chickens out" in what's known as the TACO trade.

A classic TACO would involve Trump pulling back at the last minute, saying Iran has agreed to talk or has made some advancement towards the U.S. position, allowing him to push the deadline back.

Here, the recent trends in FX markets continue: USD and CAD drift higher against all, GBP extends gains against AUD and NZD.

GBP/EUR extends lower, but not by much.

"I have no idea what to do today. The market is obviously showing extreme complacency but that’s understandable. We have seen the “escalate to deescalate” movie so many times it’s moved from comedy to irony to tragedy. So I plan to sit this one out and wait for clarity on what is going on," says Brent Donnelly, strategist at Spectra Markets.

Those with GBP payments should talk to their dealer to explore orders. If you don't have a dealer, enquire with a reputable provider today to see how much currency you could secure now, rather than leaving the outcome exposed to further market swings.