The sudden spike in oil & gas prices could derail the BoE's interest rate cut this month..
| GBP
| The Pound has responded exactly how it must do as a high-beta currency against the safe-haven currencies when geopolitics suddenly erupts; £-€ lost 1% and £-$ lost 2% immediately after reports of the US/Israel attack on Iran over the weekend.
Both pairs have recovered some of the lost ground today (what tends to happen after a very sudden and explosive drop in value), but Sterling will be under pressure for the duration of the military campaign.
Apart from not being classed as a safe-haven currency, the other major problem for GBP here in this conflict is that the UK is a large energy importer. A 10% jump in oil and a ridiculous 50% jump in gas prices today causes real problems for inflation.
Money markets have reduced their expectations of a UK rate cut by 15% today and this will likely fall further from here. This is based on higher energy prices being seriously inflationary (like we saw when Russia first invaded Ukraine) and the expectation that the BoE may adopt a 'wait-and-see' approach to the situation.
The problem facing the Pound is multifaceted at this stage with stagflation, inflation, it being a high-beta currency and political issues all weighing.
There is over 2-weeks until the latest BoE decision and a lot can happen during that time especially if Iran agree with the US on a nuclear programme quickly.
Thankfully, the UK offers very little this week in terms of economic data so the Pound will be moved just by the obvious current affairs. We do have the 'low-key' Spring forecast statement tomorrow which i'm hopeful will be a positive one.
EUR The EU and the € face exactly the same problems at the UK and £ in terms of energy prices.
The advantage here is inflation in the region has been under control and at target for some time, so whilst this may cause short-term pain, it's highly likely to be just that and so the ECB should have no need to intervene.
The problem is the EU is a much bigger energy importer than the UK and so the longer this goes on the more expensive things will get and the halting of trade supply chains (Strait of Hormuz and Suez Canal) will hurt the Euro-Zone far more economically than the UK.
Even as a favourable safe-haven currency, the current situation is a net-negative for the Euro. Friday's GDP result is the main attraction this week for the Euro-Zone.
USD For one of the first times since this Trump administration, the USD is the safe-haven currency of choice during a risk-off environment.
Much of the safe-haven weakness last year was part of the 'sell the Dollar' trade as it was the US that was creating the problems in the world (tariffs and geopolitics).
Whilst this conflict with Iran is about nuclear and the US 'started it', the market is viewing things in the same way as the Venezuela attack with it being net-USD positive all because oil is involved.
USD is the dominant currency in oil settlements and with oil prices rising fast and many turning to stockpile and secure at current prices this has simply increased the value of the Dollar.
The US offers retail sales and jobs data on Friday that is sure to create some volatility on release.
Please check out the main events of the week below..
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