After the rush midweek, when the pound gained 2% on the dollar over 24 hours, GBP/USD was in more doubtful mode yesterday, although it has held onto most of the gain. A similar story against the euro, but GBP/EUR is now back to where it was before Easter.
The cause of all the movement remains the war in Iran and whether the ceasefire is holding or not. Just about enough to hold President Trump in check, it would appear so far, and at least some oil flowing through the Straits of Hormuz.
In the meantime the normal economic dials that affect sterling exchange rates have been going in all the wrong directions.
This week we’ve seen the influential business mood monitor PMI turning way down low for the UK, with services PMI dropping to its lowest for a year. The Bank of England abandoning plans to cut interest rates have helped see house prices drop at their fastest rate for two years, and RICS surveyors were at their most pessimistic about the UK property market since December 2023.
No wonder the markets have been keen to grasp any indication that this will be a short-lived affair and that normality will soon return.
With little of interest happening on the data front and no interest rate decisions for weeks, it will remain the Middle East in the driving seat for exchange rates. Even the political drama in the UK has gone quiet, with Keir Starmer’s position looking more secure than a month or two ago. A reminder though, that this morning in four weeks we could be looking at a disastrous set of May local election results for the prime minister.
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