By James Caley
It has been a busy week for data, but markets only really picked up towards the end of it. Early in the week, German consumer confidence showed the Eurozone is still under pressure, which held the euro back slightly. Central banks in Japan, Canada and the US all held rates as expected, so there was little movement through the first half of the week.
The key move came yesterday, where the US dollar fell back and lost ground against both the pound and the euro. This was despite some decent US data earlier in the week. The dollar has weakened as markets react to the situation in Iran and disruption around the Strait of Hormuz, which is creating uncertainty and pushing the dollar lower. With oil supply routes heavily disrupted and prices rising sharply , markets are becoming more sensitive to risk, and we are now seeing that feed through into currency moves.
Across Europe, the picture remains mixed. There are some signs of growth picking up in places like Germany and Spain, but it is far from consistent, with France showing no growth at all. Inflation has also moved higher again, which adds to the uncertainty and keeps markets cautious.
In the UK, the Bank of England held rates steady this week, which has helped support the pound. Yesterday afternoon, both the euro and the dollar lost ground against sterling following the announcement. The focus now turns to inflation and energy prices. Ongoing tension involving Iran continues to keep oil prices unpredictable, and if this feeds into higher inflation, it reduces the chances of interest rate cuts in the near term, which may continue to support the pound.
Looking ahead to today, there is very little data scheduled, with only US manufacturing figures due later this afternoon. That means markets may be quieter, but it also means they can move quickly if sentiment shifts. After the dollar sell off and sterling strength yesterday, current levels look more attractive than they have done for some time for both EUR and USD buyers. We have already seen how quickly things can move, and with little data to guide markets today, there is a real risk of rates turning back. If you have a requirement, this could be a sensible time to act rather than waiting and risking a move back against you.