If you’re making an international transfer, this is a week to pay close attention. Markets are reopening after the Easter break into one of the most uncertain periods since the Iran conflict began – and the mood this morning is cautious.
The big story is tonight’s deadline. Donald Trump has threatened to strike Iran’s power plants and bridges unless the Strait of Hormuz – a vital shipping lane for around a fifth of the world’s oil – is reopened. Iran rejected a 45-day ceasefire proposal over the weekend and threatened to close a second shipping route. Oil remains above $109 a barrel. Whether tonight brings an escalation or another postponement will set the tone for the rest of the week.
Over the Easter weekend, US jobs data landed on Good Friday while most markets were closed. The economy added 178,000 jobs in March – three times what was expected. Normally that kind of number would strengthen the dollar significantly. This time the reaction was muted because markets simply could not trade on it. Today is the catch-up session, and the dollar is already firmer.
What matters even more is this week’s US inflation data. On Wednesday the Federal Reserve publishes minutes from its last meeting, giving a window into how worried policymakers are about rising prices. On Thursday and Friday the key inflation readings arrive. If those numbers come in hot – and many analysts expect them to – it would make US interest rate cuts even less likely, keeping the dollar strong and making it more expensive to buy dollars with pounds or euros.
Closer to home, the new UK tax year started last week. Businesses are now paying higher employer national insurance and a higher national living wage, at a time when energy costs are already elevated. The economy is barely growing according to the latest surveys. The Bank of England’s next interest rate decision is on 30 April, and while most expect rates to stay where they are, the rising cost of living is making the outlook harder to read.
In Europe, the same pressures are building. Eurozone inflation jumped from 1.9% to 2.5% in March, driven by energy costs. The European Central Bank is now openly debating whether to raise interest rates at its April meeting – a sharp turnaround from earlier in the year when cuts were still on the table.
For the pound specifically, it is weaker against the dollar this morning and roughly flat against the euro. The direction this week depends on two things above all: what happens with Iran tonight and what the US inflation numbers say later in the week. Both have the potential to move exchange rates sharply.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Smart Currency Exchange account manager on 020 7898 0541 to get started.
