Iran talks wobble as oil retreats

Sterling spent Wednesday going almost nowhere against the dollar and euro, and that tells you something. When the pound stops moving, it usually means the market is staring at something more interesting, and right now that something is Donald Trump and a draft peace deal that may or may not exist.

The president dragged the mood down sharply at a cabinet meeting on Wednesday afternoon. After spending the weekend boasting that a deal with Iran had been “largely negotiated”, he suddenly told reporters the United States was “not satisfied” with what was on the table, that Iran “very much” wants an agreement but might not get one, and that the alternative was to “have to just finish the job”. Markets, which had been quietly pricing in peace and cheap oil, did a double take.

Then things got odder. Iranian state television aired what it described as an unofficial draft of the agreement, complete with a pledge to reopen the Strait of Hormuz to commercial shipping within a month. The White House response was blunt and instant: “a complete fabrication”. Secretary of State Marco Rubio, pressed for clarity, would only commit to the fact that “some progress” had been made, which is the sort of phrase diplomats use when they would rather not say anything at all. By Wednesday’s close, Brent crude had fallen more than 3 per cent, and overnight the Americans bombed a few drone sites near the strait, just to keep everyone honest. Oil has nudged back up this morning, with little real idea of where it goes next.

While Washington argues with itself, the bills keep landing on British doormats. Energy regulator Ofgem confirmed yesterday morning that the typical household will pay 13 per cent more from 1 July, with the gas portion alone rising by nearly a quarter. Analysts are already warning of another increase in October if oil stays elevated, which puts the Bank of England in an awkward spot. It has been hoping to cut interest rates this year. The energy bill keeps telling it not to.

The European Central Bank has fewer doubts. Isabel Schnabel told Reuters at the start of the week that a June rate rise “will be needed”, and President Christine Lagarde, on an Italian chat show at the weekend, confirmed that March’s inflation forecasts would shortly be revised upwards. Money markets now price a June hike at close to nine in ten, which is about as close to certainty as money markets ever get.

That leaves today’s data releases looking unusually important. The United States publishes a second estimate of its first-quarter gross domestic product (GDP) this afternoon, along with weekly jobless claims, and Friday brings the Federal Reserve’s preferred inflation measure. With three major central bank decisions stacked into the back half of June, the next few weeks will decide whether sterling’s current calm is the eye of the storm or just a quiet patch.

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