Sterling begins Wednesday having modestly strengthened against the euro and the US dollar since the start of the week. The pound’s performance would have been more positive had it not been for another round of confrontation between the United States and Iran overnight.
With Europe’s energy prices now almost 11% more expensive than a year ago, the European Central Bank (ECB) is expected to be the first major central bank to raise interest rates in response to the energy crisis. The Bank of England has played its cards close to its chest thus far, but there is a growing expectation it will have to act to ease price pressures in the UK economy. Of course, you can always avoid gambling against the markets by locking in today’s rate with a forward contract today.
The American job market once again flexed its remarkable resilience amid a raft of pressures that now includes tariffs, war in the Middle East and a rapidly shifting inflation outlook. Job openings increased by almost 800,000 in April to reach their highest level since November 2024. Friday’s payroll data will give us an idea of how many of those positions are being filled.
We’re not seeing much clarity when it comes to negotiations to end the war in the Middle East, and it is precisely this uncertainty that is again driving the price of oil close to $100 to the barrel. A peace deal “could happen today, it could happen tomorrow, it could happen next week”, according to US Secretary of State Marco Rubio, providing a neat example of just how up in the air things are.
As if this wasn’t enough, American government officials have announced they plan to create another tariff to prevent goods created through forced labour from entering the country. The proposal would see imports from 60 countries (among them China, India, the EU and the UK) subject to a levy of between 10-12.5%.
Finally, gold has finally taken over the mantel of the world’s most widely held reserve asset, according to analysis by the European Central Bank. The precious metal has seen its popularity sky-rocket over the past year, first as a reaction to the political ruptures in the United States, then via a retail-driven dash to find value through the volatility.
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GBP: Subject to foreign whims
The momentum that sterling had built over Monday and Tuesday was punctured by overnight news from the Middle East. Like many net energy importers, the best thing that could happen for the UK and its currency right now is for the war to end and the supply of oil to normalise. Unfortunately, nobody can say if or when that will actually happen.GBP/USD: the past year
EUR: Scene set for ECB
Headline inflation increased to its highest level in almost three years in April, fuelled by surging energy and transport costs. The European Central Bank is now widely expected to increase interest rates at its next meeting as higher prices for core goods like food suggest the energy crisis is spilling out beyond petrol stations.GBP/EUR: the past year
USD: Casting gas prices aside
The American economy has been providing a strong foundation for the US dollar this week, with some strong manufacturing and jobs data a reminder of its underlying strength. While consumers are shelling out record sums at the gas pumps, the economy is still creating jobs and growing steadily.USD/GBP: the past year
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