26/07/2024
Written by: Ian Morley
Summary:
Last night, tensions escalated in the Middle East following Israel’s strike on Iran. This led to an immediate market reaction with oil prices surging, equity futures declining, and safe-haven currencies like CHF, JPY, and USD strengthening. Initial panic in markets is subsiding as senior Iranian officials suggest no immediate retaliation plans.
Federal Reserve commentary overnight indicated a readiness to maintain current interest rates, with Neel Kashkari suggesting rates may remain unchanged throughout the year and Fed Bostic expressing a similar sentiment regarding rate cuts.
Speeches:
Market Insight:
UK retail sales stagnated in March, indicating a sluggish recovery from last year’s recession, and highlighting persistent challenges with the cost of living. Additionally, February’s GDP figures were slightly lower than January’s, contributing to a decline in GBP value across markets.
Ongoing tension in the Middle East is expected to heavily influence market sentiment, with Israel’s recent actions reinforcing the USD’s status as a safe-haven currency. Combined with factors such as US inflation and interest rate projections, there are indications of potential further gains for the USD in the medium term.
Analysis:
Recent data shows UK Consumer Price Index (CPI) lower than that of the US for the first time since 2022. Governor Bailey’s remarks on the comparative inflation risks between the UK and US underscore this trend. While US CPI has fluctuated between 3% and 3.7% since June last year, UK CPI has declined from 7.9% to 3.2%. If UK CPI continues to decrease as expected by Governor Bailey, while US CPI remains stable, it’s reasonable to anticipate a decline in GBPUSD exchange rates under these conditions.