Pound eases as the ECB decides

The pound is having a quiet grumble this morning, slipping a little against both the euro and the dollar. But the day does not really belong to sterling. It belongs to Frankfurt, where the European Central Bank decides what to do with interest rates this afternoon. It is the first of three big central bank calls crammed into the next few weeks, and for once the pound is watching from the wings.

Here is the thing though. The ECB rarely moves two meetings in a row, and having nudged rates up in a surprise back in June it has every reason to sit still and watch that decision work through. So the smart money is on no change today, which puts the real interest in what Christine Lagarde says afterwards. Does she hint that another rise could be coming later this year, or does she sound perfectly happy to leave things where they are?

Behind that question sits one stubborn problem, and it is oil. The price has pushed higher for four days running and is now at its highest since early June, back near the levels that rattled everyone the first time round. The reason comes down to two of the busiest stretches of water on the planet.

American strikes on Iran have kept the Strait of Hormuz on a knife-edge night after night for well over a week now, and Yemen’s Houthis have declared a blockade of Saudi ships in the Red Sea too. Roughly one in every five barrels of the world’s oil sails through Hormuz. When both routes look risky at the same time, the cost of a barrel stops being someone else’s problem and starts nudging up the prices the rest of us pay.

Which is exactly why three central banks are all glaring at the same barrel. Cheaper energy was supposed to let them ease off. Dearer energy drags them straight back to the drawing board. The ECB goes first today, the US Federal Reserve is up next week and the Bank of England takes its turn on the 30th. None of them will relish admitting the inflation fight is not quite finished.

So the next couple of weeks boil down to one question. Is this a short sharp shock that fades once the shipping headlines quieten down, or the start of something more stubborn that sends the whole rate-cut conversation back to square one? Lagarde gets first go at an answer this afternoon.

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