Renewed hopes that the war in the Middle East was drawing to an end sent the pound close to it strongest level in two weeks against the euro to begin Wednesday. The Strait of Hormuz remains a point of contention, although President Trump suggested talks between the United States and Iran would resume in the coming days.
The last time you would have got such a good rate on a pound to euro transfer was back when the initial ceasefire was announced, so it does seem sterling’s fortunes currently rest on events in the Middle East. That presents significant risk should the conflict’s unpredictable protagonists change course suddenly.
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While a dollop of optimism was certainly appreciated, currency markets are still grappling with what the conflict means for the global economy. The International Monetary Fund (IMF) provided a gloomy dose of reality. The vast majority of economies would see output fall and inflation rise even in a ‘mild’ scenario, according to a new report.
Its projections for the UK were particularly worrying. The IMF knocked 0.5% off its growth projection for the UK economy in 2026, taking it from 1.3% to just 0.8%. At the same time, it now believes unemployment will peak at 5.6% as the gas-dependent economy bears the brunt of the energy supply crunch.
In a nice bit of symmetry, the UK will actually report growth data for March tomorrow morning. This is an opportunity to turn the tide after a string of disappointing results. As ever, sterling could fall further should those figures suggest the economy stalled in the early stages of the conflict.
