The conflict in the Middle East is still top of the agenda for currency markets as we enter the third week of the war. Oil remained above $100 per barrel for the majority of Monday’s trading with the headlines focused around efforts to resume shipments through the vital strait of Hormuz.
So far, America’s allies have resisted directly assisting military actions in the region. Prime minister Sir Keir Starmer insisted the UK would not be drawn into a wider conflict. Instead, he announced £53mn in financial assistance for rural households that rely on oil for heating. Japan and France also declined to send ships to help clear the shipping lanes, much to President Trump’s chagrin.
The pound strengthened by half a cent against the US dollar yesterday. The euro also made a similar advance over the US dollar, a sign of at least a moderate improvement in risk appetite.
It’s a big week for central banks. We wrote yesterday that recent events have changed the game for the Bank of England, and that’s true for a lot of the major rate setters. The Reserve Bank of Australia decided to hike interest rates last night, but experts expect the Bank of Japan, the Federal Reserve and the Bank of England to announce pauses by the end of Thursday.
Consumer sentiment dropped to a 14-month low in S&P Global’s March survey of British households. In what was a pretty grim reflection of the conflict’s initial impact, the report found consumers were reluctant to spend and borrow as energy and fuel costs rocketed and interest rate cuts look unlikely for the time being.
In what could turn out to be good timing, the UK’s inflation basket has received its annual update. Each year, analysts select a number of representative consumer goods and use their cost to track price increases. Into this year’s basket come pet grooming, hummus and alcohol-free beer (perhaps explaining the consumer gloom).
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