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Markets woke up to a very different oil price this morning. After briefly surging past $119 a barrel on Monday – its highest since 2022 – crude collapsed back to around $90 after President Trump told CBS the Iran conflict is “very complete, pretty much.” That is a staggering swing in less than 24 hours, and it triggered a wave of relief across global markets overnight.
Asian shares surged on Tuesday, echoing a late rally on Wall Street as oil prices fell back. European markets opened higher too, with the FTSE 100, DAX and CAC all gaining in early trading. The mood has shifted from panic to cautious optimism – but “cautious” is doing a lot of heavy lifting in that sentence.
The reason for caution is simple: the Strait of Hormuz is still effectively closed, Iraq’s oil output has collapsed, and Iran’s newly named Supreme Leader is a hardliner. Trump has sent mixed signals throughout this conflict, so markets are treating his latest comments with a healthy dose of scepticism. Oil futures for 2027 and 2028 remain in the high $60s, which suggests traders see extreme prices as temporary – but temporary can still mean weeks or months, and businesses with costs to manage cannot afford to wait and see.
Yesterday we asked whether the oil spike was a short, nasty shock or the start of something more stubborn. The honest answer is we still don’t know. What has changed is that the conversation has moved from “how high can oil go?” to “how quickly can it come back down?” – and that is a more constructive question for markets to be asking.
For currency markets, the dollar remains king. Safe-haven demand has pushed the pound to 11-week lows against the dollar, even as sterling continues to outperform the euro. The euro remains the worst-performing major currency since the conflict began, weighed down by Europe’s heavy reliance on energy imports. The pound sits in an awkward middle ground: stronger than the euro because the UK is less energy-exposed, but weaker against the dollar because nothing competes with US assets when the world feels fragile.
The big test this week is US inflation data tomorrow. February’s consumer price index (CPI) reading lands before the oil shock hit, so it won’t capture the energy surge – but a hot number would reinforce the case for the Federal Reserve to hold rates when it meets next week. And it is worth noting that all three major central banks – the Fed, the Bank of England and the European Central Bank (ECB) – deliver rate decisions within 48 hours of each other next week. All three are expected to hold, but what they say about the oil shock and its inflation risks will set the tone for the weeks ahead.
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GBP: Rate cut hopes shelved until the dust settles
The Bank of England’s expected March rate cut has been effectively taken off the table by the Iran conflict. Markets now see a hold on 19 March as near-certain, with analysts warning that UK inflation could push towards 3.5% this year if energy prices stay elevated. Friday brings UK monthly gross domestic product (GDP) data for January, with forecasts pointing to a modest pick-up – but any domestic good news risks being drowned out by the oil story.
GBP/USD past year
EUR: Europe’s energy bill keeps the euro pinned
The euro has fallen further than any other major currency since the conflict began, losing roughly twice as much ground as the pound. Europe’s structural dependence on imported energy means surging oil and gas prices hit the eurozone economy harder and faster than most. The ECB meets on 19 March and is expected to hold rates, but markets have swung from pricing cuts to pricing two possible rate increases this year.
GBP/EUR past year
USD: Safe-haven shine dims slightly
The dollar eased a touch on Tuesday morning as Trump’s de-escalation comments took some heat out of safe-haven demand. It remains firmly stronger over the past fortnight, however, and the focus now turns to tomorrow’s CPI reading and next week’s Federal Reserve decision. The Fed’s latest Beige Book painted a mixed picture of the US economy, with resilience in some sectors but growing weakness in consumer spending.
USD/GBP past year
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