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Sterling sits near its highest level in April.
The pound ended Monday close to its best level since the end of March against the US dollar and the euro, despite widespread uncertainty over the energy crisis and its impact on the economy. Iran did strike a more constructive tone over the vital Strait of Hormuz, but only after planned talks with the United States stalled over the weekend.
While Brent crude futures neared $110 per barrel to start the week, almost double January’s price, the Iranian regime indicated it was willing to negotiate on the issue of trade. That may prove a non-starter for the United States should the question of nuclear disarmament be off the table. Recent tit-for-tat shipping seizures in the Strait certainly indicate a diplomatic solutions is a way off.
In a week in which every G7 central bank will announce interest rate decisions, policymakers have the chance to set the direction for their respective currencies. However, the expectation is for all of them to leave rates on hold.
The Bank of Japan was first up, announcing a hold at 0.75% overnight. The Federal Reserve and the Bank of Canada follow tomorrow, before the Bank of England and the European Central Bank are lined up for Thursday.
Monday’s trading was a little curious, as pretty much every major currency looked weak for one reason or another. Sterling strengthened by a little against the US dollar but was knocked back by the Japanese yen, which was itself a little soft ahead of the BoJ’s decision.
MPs will today debate if Sir Keir Starmer’s decision to appoint Peter Mandelson as ambassador to the United States should be the subject of a formal inquiry. The vote could be a test of the prime minister’s support after the messy affair dominated headlines last week.
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GBP: Support from data and yields
The UK’s economic momentum has helped to support it in recent days, as PMI data GDP pointed to a better initial response to the energy crisis than expected. However, that isn’t the sole factor supporting the pound. Currency markets are pricing in a more hawkish Bank of England and the recent jump in government borrowing costs (and therefore, yields) has been good for the pound, even if it’s been burning a hole in government coffers.
GBP/USD: the past year
EUR: Clocks set to June
Even though headline inflation jumped last month, core inflation (which crucially removes fuel from the calculation) actually came down. Economists think this should be the European Central Bank the time to announce a hold on Thursday and revisit the issue at its June meeting.
GBP/EUR: the past year
USD: Fed just the start
The Federal Reserve’s decision is just part of the significant events that could impact the US dollar this week. The war in the Middle East tops that list, but the Core PCE price index, GDP and durable goods orders mean the dollar could be pulled this way and that before the week is out.
EUR/USD: the past year
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