If you checked the oil price yesterday morning and felt a knot in your stomach, check it again now. After briefly surging past $119 a barrel on Monday – its highest since 2022 – crude collapsed back to around $90 after President Trump told CBS the Iran conflict is “very complete, pretty much.” That is a staggering swing in less than 24 hours, and it sent a wave of relief through global markets overnight.
Asian and European shares bounced on Tuesday morning, echoing a late rally on Wall Street. The mood has shifted from outright panic to cautious optimism – but cautious is doing a lot of heavy lifting there.
The Strait of Hormuz is still effectively closed, Iraq’s oil output has collapsed, and Iran’s newly named Supreme Leader is a hardliner who shows no sign of backing down. Trump has sent mixed signals throughout this conflict, so markets are not taking his latest comments at face value.
For anyone with money moving between currencies – whether you are buying property abroad, transferring a pension, or simply planning a holiday – the past fortnight has been a sharp reminder of how quickly exchange rates can shift. Sterling has fallen to 11-week lows against the dollar, driven by overwhelming demand for US assets when the world feels uncertain. Against the euro, though, the pound is holding firm near a one-month high, because Europe’s economy is even more exposed to the energy shock than the UK’s.
Yesterday we asked whether the oil spike was a short, nasty shock or the start of something more stubborn. The honest answer is we still do not know. What has changed is that the question has moved from “how high can oil go?” to “how quickly can it come back down?” – and that is a more constructive place for markets to be.
The big test this week is US inflation data tomorrow. February’s consumer price index (CPI) reading lands before the oil shock hit, so it will not capture the energy surge – but a hot number would reinforce the case for the Federal Reserve to hold rates when it meets next week. All three major central banks – the Fed, the Bank of England and the European Central Bank (ECB) – deliver rate decisions within 48 hours of each other next week. All three are expected to hold, but what they say about oil and inflation will set the tone for exchange rates in the weeks ahead.
