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President Trump's request for assistance in the strait of Hormuz have so far fallen of deaf ears.
The conflict in the Middle East is still top of the agenda for currency markets as we enter the third week of the war. Oil remained above $100 per barrel for the majority of Monday’s trading with the headlines focused around efforts to resume shipments through the vital strait of Hormuz.
So far, America’s allies have resisted directly assisting military actions in the region. Prime minister Sir Keir Starmer insisted the UK would not be drawn into a wider conflict. Instead, he announced £53mn in financial assistance for rural households that rely on oil for heating. Japan and France also declined to send ships to help clear the shipping lanes, much to President Trump’s chagrin.
The pound strengthened by half a cent against the US dollar yesterday. The euro also made a similar advance over the US dollar, a sign of at least a moderate improvement in risk appetite.
It’s a big week for central banks. We wrote yesterday that recent events have changed the game for the Bank of England, and that’s true for a lot of the major rate setters. The Reserve Bank of Australia decided to hike interest rates last night, but experts expect the Bank of Japan, the Federal Reserve and the Bank of England to announce pauses by the end of Thursday.
Consumer sentiment dropped to a 14-month low in S&P Global’s March survey of British households. In what was a pretty grim reflection of the conflict’s initial impact, the report found consumers were reluctant to spend and borrow as energy and fuel costs rocketed and interest rate cuts look unlikely for the time being.
In what could turn out to be good timing, the UK’s inflation basket has received its annual update. Each year, analysts select a number of representative consumer goods and use their cost to track price increases. Into this year’s basket come pet grooming, hummus and alcohol-free beer (perhaps explaining the consumer gloom).
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GBP: Hawks hold the power
Sterling stabilised into the new week, despite a disappointing GDP miss in January that set the scene for more struggles ahead. The only real silver lining is that the threat of higher inflation has fundamentally changed the game for the Bank of England and helped support the pound to start the week.
GBP/USD: the past year
EUR: Six-month lows
The euro is teetering close to its lowest level since last summer against both the pound and the US dollar. It has been a miserable March so far, with selling amplified by fears that the European economy will struggle to deal with elevated energy prices.
GBP/EUR: the past year
USD: A rare night off
Due to ongoing events, the Federal Reserve might have a rare excuse to play it safe. Experts predict the Fed will announce a hold as it waits for the conflict to play out. At any rate, this could be a much more low-key event than we’ve grown accustomed to over the past year.
EUR/USD: the past year
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