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The price of oil surged and sterling weakened as markets watched and waited for news from the Middle East.
The pound is holding its nerve this morning ahead of a day that has been circled in red on currency traders’ calendars for weeks. Both the Bank of England and the European Central Bank announce their rate decisions today – the BoE at noon, the ECB early afternoon – while oil is surging to its highest level since 2022 and the Federal Reserve’s most fractious meeting in over 30 years is still fresh from yesterday.
It is the oil that sets the mood. Brent crude pushed above $126 a barrel overnight after reports emerged that US Central Command will brief President Trump today on new military options against Iran – including strikes on energy infrastructure. Trump confirmed this week that the naval blockade will stay in place until Iran agrees to a nuclear deal. The Strait of Hormuz, the narrow waterway through which roughly a fifth of the world’s oil normally travels, is effectively closed.
For the Bank of England, that is the backdrop for its noon decision. A hold is almost certain – every economist polled in the latest Reuters survey expects no change. But the vote split is a different matter entirely. March was a clean 9-0 to hold. Since then, inflation has climbed to 3.3%, services inflation has ticked up to 4.5%, and oil has added another sharp leg higher. Chief Economist Huw Pill has been the most vocal in warning the Bank risks falling behind the curve on second-round effects, and analysts widely expect him to push for an immediate hike today – making this a likely 8-1 vote. Governor Andrew Bailey told the IMF last month he was “not going to rush to judgements,” but the new forecasts he publishes alongside today’s decision will set the tone for what comes next.
The European Central Bank follows this afternoon. A hold is equally expected, but markets are already building in nearly half a percentage point of hikes by year-end – a dramatic shift from just a few months ago when the question was still whether the ECB would cut. Two data prints could sharpen the picture before Christine Lagarde takes the podium: the eurozone’s first estimate of first-quarter growth and April’s flash inflation reading are both due this morning. Inflation in the eurozone hit 2.6% in March; forecasters expect April to come in closer to 3%. What Lagarde says about June – and how explicitly she opens the door to a rate rise – will be the most closely watched moment of the afternoon.
Across the Atlantic, the drama arrived early. The Federal Reserve held rates steady yesterday in what was Jerome Powell’s final press conference as chair – and it was anything but routine. The committee split 8-4, the most dissenting votes since 1992. Three dissenters – Beth Hammack, Neel Kashkari and Lorie Logan – wanted language removed that suggested the next move could be a cut. Stephen Miran was the lone voice pushing for an immediate reduction. Powell confirmed he will remain on the Fed’s governing board after his chairmanship ends on 15 May, citing what he called unprecedented legal pressure from the Trump administration on the central bank’s independence. His nominated successor, Kevin Warsh, cleared the Senate Banking Committee by the narrowest of margins on the very same day.
So today lines up with a queue of market-moving events stretching from this morning’s eurozone data through the BoE decision at noon, Lagarde at the podium in the early afternoon and then US first-quarter growth and spending figures landing at half past one. And running through all of it – louder than any central banker – is the Strait of Hormuz, where the world’s oil supply and the global inflation outlook are sitting in the same precarious hand.
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GBP: The vote split is today’s real story
Sterling has come into this morning’s decision in reasonable shape – broadly firm against the euro and well above where it started April against the dollar. The hold itself is a foregone conclusion; what moves markets is whether Huw Pill votes for a hike and what Andrew Bailey says about the path ahead. If the language on second-round inflation risks sharpens – with oil at a four-year high and services prices still running hot – the pound has room to extend recent gains. If Bailey leans hard against the hike pricing already built into the market, expect the opposite.
GBP/USD past year
EUR: Lagarde’s words matter more than the decision
The euro has barely flickered this week as markets wait for direction. The decision itself is all but certain to be a hold, but this morning’s flash inflation reading is expected to show eurozone consumer prices accelerating past 3% – and if Lagarde signals at this afternoon’s press conference that a June rate rise is genuinely on the table, the euro has something to work with. Bundesbank president Joachim Nagel said last month the ECB was caught “between its baseline and adverse scenario.” At $126 oil, most would say the adverse scenario is arriving in real time.
GBP/EUR past year
USD: Hawks win the argument, Powell takes his bow
The dollar firmed overnight as markets absorbed the hawkish tone of the Federal Reserve’s split decision. Three committee members pushed to drop any language pointing toward future rate cuts – a meaningful signal that inflation is making the doves uncomfortable. Powell’s decision to stay on the Fed’s board will loom larger over time: it denies Trump an immediate vacancy and keeps the question of central bank independence firmly in the conversation. Today’s US first-quarter growth figures and March spending data at 13:30 could push the dollar further if they come in above expectations.
USD/GBP past year
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