Oil eases as Fed digs in

For three months oil has been the only story for currency markets. That might be starting to change. Brent crude tumbled more than 5% on Wednesday and tankers are finally moving through the Strait of Hormuz again after weeks of near-empty waters. The dollar paused for breath after a week of climbing towards six-week highs and sterling held its ground against both the euro and the dollar.

The catalyst is the first real sign of progress in talks between Washington and Tehran. Iran is reviewing a US proposal that would temporarily lift the oil sanctions in exchange for a long-term freeze on its nuclear programme. It is not a deal yet, but it is the first time since February that the direction of travel has been visibly positive. Satellite trackers counted 55 ships crossing the strait in the week to 17 May, almost three times the week before.

There are still plenty of reasons for caution. The boss of Abu Dhabi’s national oil company warned this week that full recovery in Middle Eastern oil flows is unlikely before late 2027, and the cost of insuring a tanker through the strait remains painfully high. But after three months of stuck shipping, even small movements feel like progress.

The other major event came late yesterday afternoon. The US Federal Reserve published the minutes of its April meeting and the tone was tougher than expected. Most members said they would back another rate rise if inflation stays above the central bank’s 2% target, and many wanted to remove the language hinting that cuts were on the way. Four officials voted against the decision, the most since 1992.

Kevin Warsh, who took over as Fed chair last Friday, has inherited a group already leaning towards raising rates rather than cutting them. His first meeting falls on 16 and 17 June, the day before the Bank of England makes its own decision. The rate-cut hopes that had been quietly building have now mostly disappeared.

Back in the UK, the political pressure on Sir Keir Starmer has reached a new level. More than 95 Labour MPs have now publicly called for him to step aside, the health secretary has resigned and Andy Burnham is positioning to return to parliament. Burnham did move to settle the markets on Monday by promising to leave the UK’s borrowing rules unchanged if he becomes prime minister. UK government borrowing costs, which jumped sharply last week, have eased a little.

The week is not over yet. Today brings the eurozone’s flash consumer confidence reading and a batch of flash purchasing managers’ index (PMI) figures for the UK and the eurozone. UK retail sales for April are out tomorrow morning. With politics and oil starting to make a little less noise, the regular data calendar matters again.