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US jets, at least, remained on the tarmac yesterday (Joseph Sohm / Shutterstock.com)
After the rush midweek, when the pound gained 2% on the dollar over 24 hours, GBP/USD was in more doubtful mode yesterday, although it has held onto most of the gain. A similar story against the euro, but GBP/EUR is now back to where it was before Easter.
The cause of all the movement remains the war in Iran and whether the ceasefire is holding or not. Just about enough to hold President Trump in check, it would appear so far, and at least some oil flowing through the Straits of Hormuz.
In the meantime the normal economic dials that affect sterling exchange rates have been going in all the wrong directions.
This week we’ve seen the influential business mood monitor PMI turning way down low for the UK, with services PMI dropping to its lowest for a year. The Bank of England abandoning plans to cut interest rates have helped see house prices drop at their fastest rate for two years, and RICS surveyors were at their most pessimistic about the UK property market since December 2023.
No wonder the markets have been keen to grasp any indication that this will be a short-lived affair and that normality will soon return.
With little of interest happening on the data front and no interest rate decisions for weeks, it will remain the Middle East in the driving seat for exchange rates. Even the political drama in the UK has gone quiet, with Keir Starmer’s position looking more secure than a month or two ago. A reminder though, that this morning in four weeks we could be looking at a disastrous set of May local election results for the prime minister.
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GBP: Pound in balance as risk governs movements
It’s been a balanced week overall for sterling: significantly positive against the ‘safe haven currencies’ of the US dollar, yen and Swiss franc and more negative against the antipodean dollars and Scandinavian currencies, with GBP/EUR in the middle, barely moving. The only serious data points on the horizon are Gross Domestic Product (GDP) on Thursday, so it is likely to be the Middle East and White House rhetoric influencing the markets before then. Needless to say, it could all go either way.
GBP/USD past year
EUR: Oil dominates in quiet period for data
A similar story for the euro, with European business facing the same problems as the UK, being a heavy oil user without its own supply. The risk is that, like the last oil shock when Russia invaded Ukraine, it sends inflation shooting up. As it happens we have final results for inflation coming through presently and next week. So far today we’ve had German inflation ramping up to 2.8% from 2% last month, fuelling the likelihood of interest rate rises this year. Other than that it’s a fallow period for data.
GBP/EUR past year
USD: Dollar firms as markets dial down the optimism
The US dollar has steadied after giving ground during the ceasefire euphoria. This is classic risk sentiment: when investors feel less sure about the news the dollar finds support. The next test is whether the ceasefire holds in practice. Coming up later today is the March inflation figure, with a sharp rise expected.
USD/GBP past year
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