Weekly Market Report
The Pound has lost a bit of ground but generally remains supported after the Bank of England held interest rate at the end of April. The MPC noted that CPI inflation has risen to 3.3% ad is likely to move higher later in the year as the effects of higher energy prices are felt. Some analysts are pricing 50 basis points worth of tightening by the Bank of England by the end of the year. With inflation above target and growth slowing down – the tools available can do nothing about the primary cause which is energy prices driven by geopolitics.
In addition, UK local elections held last week showed Reform UK gaining more than 1400 seats whilst Labour lost several hundred. Prime Minister Starmer is under renewed pressure but vowed to remain in office.
The ECB are in a similar position with some analysts suggesting that interest rate hikes could occur at the June and July meetings. The prospect of a June hike has broadly supported the Euro against the Dollar and limited further Sterling gains.
Brent crude oil prices have seen a slight fall (although remains generally elevated) after US Defence Secretary Hegseth confirmed the ceasefire with Iran remained in place following attacks on the UAE, though the situation remains fluid.
Kevin Warsh is expected to be voted in as incoming Chairman of the Federal Reserve, taking over from Jerome Powell. The market will pay close attention to comments going forward to see whether the Fed can maintain its independence from political pressure.
What this may mean for businesses
Importers face an elevated and volatile cost environment. With oil prices elevated, fuel surcharges, freight costs and prices of energy intensive goods have increased compared to a year ago.
Close attention should be paid to Interest rate announcements over the coming months.
For businesses pricing in advanced, this uncertainty could potentially make it more difficult to predict future costs when relying solely on spot conversions.
In practice, this is leading more businesses to look at fixing rates with forward contracts, allowing them to remove that uncertainty and work to a defined cost base.