Oil eases as Fed digs in

For three months oil has dictated every move in currency markets. That might be starting to change. Brent crude tumbled more than 5% on Wednesday and supertankers are crossing the Strait of Hormuz again after weeks of near-empty waters. The dollar paused for breath after a week of climbing towards six-week highs and sterling held its ground against both the euro and the dollar.

Behind the oil move is the first real sign of progress in talks between Washington and Tehran. Iran is weighing a US proposal that would temporarily lift the oil sanctions in exchange for a long-term freeze on its nuclear programme. Satellite trackers counted 55 ships through the strait in the week to 17 May, up sharply from just 19 the week before.

Markets are not getting carried away. The head of Abu Dhabi’s national oil company warned this week that full recovery in Middle Eastern oil flows is unlikely before late 2027, and the cost of insuring tankers through the strait remains high. But the direction is finally changing.

That should have been Thursday’s defining story. Then the minutes of the US Federal Reserve’s April meeting landed at the close of trade in London. Most officials said they would back another rate rise if inflation stays above 2%, and many wanted to remove the line in the statement that had hinted cuts were on the way. Four members voted against the decision, the highest count since 1992.

Kevin Warsh, who took over as Fed chair on 15 May, has inherited a group already leaning towards raising rates rather than cutting them. His first meeting falls on 16 and 17 June, one day before the Bank of England’s own decision.

Closer to home, Sir Keir Starmer’s political problems are now firmly moving markets. More than 95 Labour MPs have publicly called for the prime minister to resign, the health secretary has quit and Andy Burnham is positioning for a return to parliament. Burnham did move to calm investors on Monday by ruling out any changes to the UK’s borrowing rules if he becomes prime minister. UK government borrowing costs, which spiked sharply last week, have settled just below their highest level in 18 years.

Attention now turns to today’s flash consumer confidence release for the eurozone and the flash purchasing managers’ index (PMI) data due in the next few hours. UK retail sales for April land tomorrow morning. After three months of geopolitics drowning out the data, the regular calendar is finally back in charge.

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