Currency markets are heading into Monday wondering what happens when talk turns into action. Washington said it will move to a naval blockade of the Strait of Hormuz after US–Iran talks ended without a deal. Tehran has responded in kind.
Why does that matter for exchange rates? Because Hormuz is an artery for global energy. If traders start believing shipping disruption is continuing the knock-on effects will be higher energy costs and stickier inflation. Less confidence in growth tends to push investors toward “safe” assets and away from risk.
The big news in Europe is the ousting of prime minister Victor Orbán in Hungary after 16 years. The result was welcomed by European Commission president Ursula von der Leyen, who said, following the departure of the far-right Eurosceptic: “Hungary has chosen Europe. A country reclaims its European path. The union grows stronger.” This does indeed feel like good news for the euro, but what will the markets take from it?
There will be cheering in Kiev as Putin’s best friend in the EU gets his marching orders, while adding another blow to Donald Trump.
Back in the financial world, we’re some way from an interest rate decision, but monetary policymakers from the Bank of England (BoE), European Central Bank (ECB) and the US Federal Reserve will be outlining their thoughts this week. The markets will be taking notice, especially in the USA as Jerome Powell’s term approaches its end.
Another interesting item to watch is the plan by the prime minister and chancellor in the UK to align more closely with Europe on a host of single market rules via the back door. Using secondary legislation and so-called ‘Henry VIII powers’ they are set to follow EU roles on such matters as food standards and carbon emissions without the need for a parliamentary vote.
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