By Ashley Finill
Yesterday’s announcement of a temporary two week ceasefire between the US and Iran brought much needed relief to markets, with oil prices falling sharply after weeks of conflict had caused volatility and uncertainty. This is largely due to easing concerns around supply disruptions through the Strait of Hormuz, a key route for global oil shipments. However, while prices have dropped, they remain elevated compared to pre conflict levels. With production still recovering and shipping confidence not fully restored, any relief at the pumps may be gradual rather than immediate.
Markets are likely to remain cautious to further developments, meaning volatility in oil and in turn inflation expectations, could persist in the short term. On the back of the ceasefire announcement, Sterling capitalised and gained some much needed ground back on both the Euro and US Dollar. The Pound climbed just over half a cent on the Euro and close to a cent on the US Dollar. This has relieved some pressure on the Pound as recent events had seen Sterling in a fragile state. The Pound likely isn’t out of the woods yet though, as the knock on effect of rising inflation will be felt in the coming weeks.
Fragile Truce Sparks Volatility in Oil and Currency Markets
At the time of writing this morning, the ceasefire already appears to be under threat. Tehran has suggested that the US and Israel have violated the agreement, with Beirut reportedly struck relentlessly over the past two days. This has once again highlighted just how fragile the situation in the Middle East remains. Adding to market concerns, there were also reports yesterday that the Strait of Hormuz remained closed following the ceasefire announcement. As fears grow over a potential breakdown in the truce, oil prices have risen once again, while currency markets have remained volatile. Sterling has lost just under half a cent against the Euro and nearly a cent against the US Dollar, underlining how this geopolitical uncertainty continues to weigh heavily on the Pound.
If you have a currency requirement over the coming weeks or months, it may be prudent to get in touch with your currency consultant today to discuss your options. We offer a range of contracts designed to help mitigate risk and protect against adverse market movements during periods of uncertainty.
Data today
There are a few releases to take note of over the next two days. Today, all data is from the US, as they post Core Personal Consumption Expenditures, Initial Jobless Claims and Personal Spending. Tomorrow, Germany post Harmonised Index of Consumer Prices at 7am. At 1.30pm Canada posts their unemployment rate and the US posts Consumer Price Index. At 3pm, the US also posts Michigan their Consumer Sentiment Index.
As always, still in close contact with your account manager should you have any upcoming requirements to enable us to help you to make your money go further.