The United Kingdom’s headline inflation rate unexpectedly remained unchanged at 2.8% in May, another signal that the economy may just have escaped the worst of the energy crisis. The pound dipped against a basket of its peers in early trading this morning as investors increased their bets that the Bank of England would leave interest rates at their current level come tomorrow’s decision.
After this morning’s data, the key event for the pound this week might well come in Makerfield, where voters go to the polls in a by-election likely to decide the prime minister’s fate. If Andy Burnham does prevail (we should get the final results in the wee hours of Friday), there is a good chance the pound weakens sharply.
You can gamble that the current pound to euro rate will improve, but that is a significant risk even in a quiet week. This certainly isn’t one of those. You may wish to secure a forward contract today to protect your money from unpredictable currency movements.
Taking a look at exchange rates, the pound strengthened ever so slightly against the euro and the US dollar on Tuesday. The risk-on mood that began this week has held until now, helping to boost some currencies that took a pounding in recent months, including the Indian rupee, the Chinese yuan and the Swedish krona.
Global leaders made their way to their shores of lake Geneva yesterday for a G7 summit. The issue of peace – both for Iran and Ukraine – featured heavily, although European diplomats, Tehran and even the president’s second, JD Vance, all stressed there was a lot of road left in negotiations to reopen the Strait of Hormuz.
High prices at the pump and the fear these might soon feed through into other businesses made the nearing deal between the United States and Iran highly anticipated around the world. Media reports suggest the current deal provides various financial incentives to Iran in exchange for reopening the Strait and a pledge not to pursue a nuclear arsenal. As has been the case throughout the war, the proof as to whether this can hold will be in the pudding.
Despite the significant technical difficulties when it comes to reopening that passage of water, which must first be swept for sea mines, the all important brent crude index fell below $80 to its lowest in more than three months on Tuesday.
Finally, the government moved a step closer to the nationalisation of beleagured utility Thames Water yesterday after rejecting a proposed rescue deal. Thames Water is buckling under the weight of roughly £20bn in debt and ministers said they didn’t want customers to be forced to foot the bill for the company’s failings.
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GBP: Risks aplenty
Stretches like the one to end this week are termed sniper’s alley by market insiders. The flow of events, which includes unemployment and retail data along with the Bank’s latest rate decision before the week is out, has the potential to blow a hole in the pound.GBP/USD: the past year
EUR: Trading sideways
While the European Central Bank hiked interest rates last week, those rates are significantly below those in the UK and the USA. Coupled with relatively slow growth figures, the euro is struggling to generate much momentum, whether that’s of the positive or negative variety.GBP/EUR: the past year
USD: A cautious introduction
Excitement is growing that the US economy might benefit from eased energy costs to finally put a lid on inflation. Don’t expect Kevin Warsh to be too bullish in his first outing as Federal Reserve chair this evening, though. The US dollar looks set to benefit from another slightly hawkish Fed hold with Warsh favouring caution until the dust from the Iran war settles.USD/GBP: the past year
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