Sterling hit a four-week high against the euro on Friday and despite a small dip so far this morning it remains strong, close to its best since last July. It is struggling against the US dollar, Canadian dollar and Japanese yen, but the events of the past week have boosted sterling against the Swiss franc and Australian dollar.
The big story at the start of this week is oil. Markets have spent the weekend staring at the same map: the Strait of Hormuz. When that waterway looks dicey for oil shipments, everything else suddenly feels fragile. The oil price has jumped again, moving above $100 this morning.
This is already feeding into transport, shipping and supply-chain prices, with businesses feeling it first and passing those costs onto households. For central banks, inflation had been calming down and rate-cut hopes were alive. In the US on Friday, Non-Farm Payrolls were well under expectations and unemployment rose in February, while retail sales dipped. But if an interest rate cut might help sort all that out, now energy prices are forcing everyone to do the maths again. March’s expected interest rate cut from the Bank of England now looks unlikely to happen, while markets are now pricing in an interest rate increase from the European Central Bank this year.
So Monday morning starts with a simple question: is this a short, nasty spike… or the start of a more stubborn inflation pulse? That answer will shape the mood for the week ahead, with US inflation data midweek likely to be the next big market test.
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