Weekly Market Report

The ECB raised interest rates by 25 basis points last Thursday for the first time since 2023 – this was in response to persistent inflation driven by the Iran conflict. The move was largely expected and the Euro failed to rally.

A peace deal has been agreed to by the US and Iran with President Trump saying the Straight of Hormuz will also reopen. This will extend the ceasefire for another 60 days during which final details of the agreement will be negotiated.

US CPI inflation figures hit 4.2%, its highest level since April 2023 as a result of energy costs and gasoline prices increasing 40.5% year on year.

Looking forward, New Fed Chairman Warsh’s first FOMC interest rate decision is due tomorrow evening.

UK CPI inflation is due tomorrow as well and will be closely followed by the market. The Bank of England Interest rate decision is due on Thursday – the same day as the Makerfield by-election – three major rate-relevant events for Sterling.

What this may mean for businesses

If the Bank of England hesitates with increasing interest rates and the ECB’s cycle gathers pace then the Euro could potentially see some strength against the Pound. Many clients have been securing forward contracts at current levels to mitigate risk here.

With high US inflation, the Dollar remains well-supported. Businesses with Dollar payments are operating in a structurally tighter environment compared to earlier this year.

Businesses continue to absorb elevated freight, fuel and energy costs. If oil prices continue to drop following the peace agreement then prices in the medium term may drop whilst short term freight may remain elevated.

The 17th-18th June (Tuesday and Wednesday) window is a highly concentrated risk window for Sterling. Businesses with payments scheduled around these dates should have a plan in place rather than reacting to outcome.