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Oil dominated another day in currency markets.
The largest release of oil reserves in history failed to calm currency markets on Wednesday. The safe-haven US dollar, supported by recent trends and stable inflation data, continued its upward trend, while the pound nudged up to its highest in over a month against the euro.
In an effort to calm recent volatility, the International Energy Agency (a strategic reserve represented by 32 countries) announced it would release 400 million barrels of oil into the global system, marking just the fifth time it has intervened since the 1970s. Despite that decision, the key Brent Crude oil index stuck stubbornly upward of $90 per barrel for most of the day and even briefly topped $100 this morning as Iranian strikes on tankers and energy infrastructure intensified.
Global leader finds themselves in an extremely unusual situation. They are forced to respond to rising commodity costs with fiscal action, yet they are also treading carefully given the perception that this will be a short war. The increasingly defiant tone the Iranian administration has struck, along with its chokehold on the crucial strait of Hormuz, has made intervention necessary.
The impact continued to be felt across the globe. In the UK, lenders withdrew mortgage products at the fastest rate since the 2022 mini-budget this week. The average product now comes with an interest rate north of 5%.
S&P’s private sector survey painted a rosier picture of the business landscape. In its March survey of over 12,000 companies, the report found expected activity increased to its highest level in 16 months, with construction in particular expecting growing profits. In keeping with the generally depressed labour environment though, investment and hiring intensions remained week.
There isn’t much in the way of economic news that could cut through the current noise. Yesterday we heard that US inflation held steady at 2.4% in February, although that probably had less of an impact that it normally might have.
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GBP: Will GDP provide a boost?
Tomorrow morning’s economic growth report gives the pound a chance to grasp some good news. GDP is only expected to have expanded by 0.1% in January, but analysts have suggested there is a chance for overperformance given upbeat sector data.
GBP/USD: the past year
EUR: Path depends on conflict
For the euro and the European Central Bank (ECB), the path for 2026 may hinge on the next few weeks. Should things resolve quickly, the ECB may be able to keep interest rates close to 2%. Should they spiral out of control, higher energy costs would likely result in weak growth and resurgent inflation.
GBP/EUR: the past year
USD: Supported by oil
With its safe-haven status in question, the US dollar is still drawing strong demand. Rapidly rising oil prices have certainly helped it gain relative to more energy exposed economies, including the eurozone and Britain. Since the start of the war, the US dollar has strengthened by close to 2% against those major rivals.
EUR/USD: the past year
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