020 7898 0500Currency markets are heading into Monday wondering what happens when talk turns into action. Washington said it will move to a naval blockade of the Strait of Hormuz after US–Iran talks ended without a deal. Tehran has responded in kind.
Why does that matter for exchange rates? Because Hormuz is an artery for global energy. If traders start believing shipping disruption is continuing the knock-on effects will be higher energy costs and stickier inflation. Less confidence in growth tends to push investors toward “safe” assets and away from risk.
The big news in Europe is the ousting of prime minister Victor Orbán in Hungary after 16 years. The result was welcomed by European Commission president Ursula von der Leyen, who said, following the departure of the far-right Eurosceptic: “Hungary has chosen Europe. A country reclaims its European path. The union grows stronger.” This does indeed feel like good news for the euro, even with Hungary being outside the eurozone, but what will the markets take from it? Overnight the Hungarian forint has gained around 2.5% against major rivals.
There will be cheering in Kiev as Putin’s best friend in the EU gets his marching orders, while adding another blow to Donald Trump.
Back in the financial world, we’re some way from an interest rate decision, but monetary policymakers from the Bank of England (BoE), European Central Bank (ECB) and the US Federal Reserve will be outlining their thoughts this week. The markets will be taking notice, especially in the USA as Jerome Powell’s term approaches its end.
Another interesting item to watch is the plan by the prime minister and chancellor in the UK to align more closely with Europe on a host of single market rules via the back door. Using secondary legislation and so-called ‘Henry VIII powers’ they are set to follow EU roles on such matters as food standards and carbon emissions without the need for a parliamentary vote.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: UK data takes a back seat to energy nerves
Sterling drifted lower at the end of last week as the market went back to pricing the Middle East first and everything else second. At home, the economic backdrop hasn’t exactly been cheering anyone up. Recent business surveys have pointed to fading momentum and rising cost pressures, which is an awkward combination when energy prices are the thing keeping everyone awake. Coming up this week we have retail sales from the British Retail Consortium tomorrow and GDP on Thursday.
GBP/USD past year
EUR: Markets consider Orban loss
The euro has been relatively steady, helped by the fact that the oil story is global rather than euro-specific. Recent trade data out of Germany has also been a reminder that parts of the eurozone economy can still surprise on the upside. We’re getting final inflation data coming through this week. Germany’s has already ticked up to 2.7%. We’ll also be hearing from several ECB rate-setters this week. But in the meantime, the fallout from a political earthquake in Hungary may extend beyond the resurgent forint.
GBP/EUR past year
USD: Safe haven support
The dollar is doing what it usually does when the world looks twitchy: it attracts demand. The blockade threat is the kind of event that makes investors reduce risk and move into liquid, defensive positions. Still, it’s not a one-way street. The US is at the centre of this escalation, and markets do occasionally balk when geopolitics starts to look improvised. For today, the key watch is home sales this afternoon, and how far the economic uncertainty is killing the property market. Tomorrow it’s producer price inflation (PPI) – definitely one to watch.
USD/GBP past year
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