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Shipping was targeted off Iran yesterday
Oil is once again setting the agenda for currency markets. Brent crude pushed towards $100 a barrel this morning as the conflict with Iran kept supplies under pressure and left central bankers facing another uncomfortable inflation problem.
Three of the world’s biggest central banks are approaching crucial interest rate decisions. The European Central Bank (ECB) goes first tomorrow, with inflation having climbed well above its target as higher energy costs feed through the economy. The Federal Reserve and Bank of England follow next week.
Markets are therefore trying to answer a difficult question. Is expensive energy something central banks should fight with higher interest rates, or a problem that tighter borrowing conditions can do little to solve? The ECB itself has stressed that the latest inflation surge is being driven largely by an energy supply shock rather than booming demand.
There were mixed signals from Germany ahead of tomorrow’s decision. Exports slipped in July, although shipments to the United States jumped sharply. Industrial production also fell during the month, leaving policymakers to balance stubborn inflation against an economy that can hardly be described as firing on all cylinders.
The next 48 hours should provide plenty more to digest. The ECB takes centre stage tomorrow before UK Gross Domestic Product (GDP) arrives on Friday alongside the latest American inflation figures. With oil hovering close to another psychological milestone, energy prices will remain the thread tying all three stories together.
GBP: Brief flurry for GBP/EUR fails to grow
Sterling made an attempt to break out of its recent torpor against the euro yesterday, briefly hitting its best for a week before falling back. This continues the theme of the past month or so. However, against the US dollar it held onto yesterday’s gains and is now at its best for a fortnight. We are coming into a period of high-level data, culminating in the interest rate decision next week. First up will be GDP on Friday morning.GBP/USD: the past year
EUR: Euro rising as ECB takes centre stage
After a negative morning for the single currency yesterday, the euro recovered in the afternoon and, like sterling, has been making headway against the dollar. It got a fresh shot in its arm this morning. ECB president Christine Lagarde will be speaking this evening, but the main event of the week will be its interest rate decision tomorrow.GBP/EUR: the past year
USD: Dollar takes a dive ahead of data deluge
It’s all been downhill for the dollar this morning, ahead of a quiet day for data. Tomorrow we’ll be getting US producer prices for August – one of the key inflation readings that Federal Reserve policymakers look at – as a prelude to the all-important general inflation reading on Friday. The betting on a Fed rate hike next week is up and down, but generally favouring a rise against a hold, especially following last week’s positive Non-Farm Payrolls.USD/GBP: the past year
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