It has been a dramatic weekend in the Middle East, and markets are reacting this morning. President Trump called off a planned military strike on Iran on Sunday, saying he would pursue a diplomatic solution after allies including Saudi Arabia urged him to seek a deal. Brent crude fell as much as 7% on the news, dropping to around $81.50 a barrel, reversing much of July’s surge. Fresh talks between the US and Iran are expected to begin today. Markets have responded positively, with the dollar softening as safe-haven demand eased, and both the pound and the euro finding room to breathe.
Last week was also significant for interest rates. The Bank of England held at 3.75% on Thursday, but the 6-3 vote in favour of holding, compared to 7-2 at the previous meeting, signals the committee is moving closer to a rate rise. Governor Bailey’s press conference struck a cautious but watchful tone, leaving the door open to a hike as soon as September.
Latest market insights:
Pound to euro:
Sterling is starting the week in a stronger position
- The pound has held near its strongest level against the euro in over a year, supported by the increasingly hawkish tone from the Bank of England and the relief rally following the overnight peace news. The fall in Brent crude this morning does, however, reduce inflation expectations, which in turn reduces the pressure on the Bank of England to raise rates. As we have noted before, that is a headwind for sterling rather than a tailwind. Markets will be watching this week’s US jobs data on Friday for signals on the broader global rate outlook, which will also feed through to GBP to EUR.
- For property buyers, a 1% move against you on a 400,000 euro purchase equals 4,000 euros straight off your budget. With the pound near a one-year high but a volatile week ahead, now could be a good moment to protect your rate. A forward contract locks it in today. A rate order means we act automatically when the market hits your target. Call us on +44 (0)204 506 5672.
US dollar to euro:
The dollar has weakened as peace hopes return
- The dollar softened this morning as Trump’s decision to call off the Iran strike reduced demand for it as a safe place to park money. When uncertainty eases, investors tend to move out of the dollar and into other currencies, which has given the euro some support this morning. The key question for USD to EUR this week is whether the peace talks hold. Any sign of a breakdown would likely push the dollar higher again quickly.
Pound to US dollar:
Sterling has recovered strongly but faces a test on Friday
- The pound has clawed back around 2% against the dollar since its June low, helped by improving UK data and a more hawkish Bank of England. This morning’s dollar softness is adding to that recovery. However, Friday’s US jobs report for July is the week’s most important event for this pair. A strong result would reinforce the case for a September Fed rate hike and push the dollar back up. A weak result could extend sterling’s recovery further.
What to watch this week:
Tuesday 4 August:
- US ISM Services PMI: A strong reading would add support to the case for a September Fed rate hike and could strengthen the dollar. A weak reading could soften it further.
Wednesday 5 August:
- Andy Burnham is expected to make his first major fiscal statement as Prime Minister, setting out his government’s spending priorities. Any hint of looser fiscal discipline could weigh on sterling quickly. A disciplined message would support it.
Friday 7 August:
- US nonfarm payrolls for July: This is the week’s most significant release. A strong jobs number reinforces the case for a September Fed rate hike and would likely push the dollar higher. A miss could ease that pressure and give sterling and the euro more room.
Middle East:
- Fresh US-Iran talks begin today. Progress would likely extend Brent’s fall and ease inflation expectations globally. A breakdown would reverse this morning’s move and push oil and the dollar higher.
If you have an international transfer coming up in the next few weeks or months, for a property purchase, a pension payment, supporting family abroad, or any other reason, the events of this week are a useful reminder that exchange rates can move quickly, and not always in the direction you’d hope.
The good news is that you don’t have to simply wait and see what happens. Speaking with a currency specialist costs nothing and carries no obligation. They can talk you through your options, including spot contracts for transfers you need to make now, and forward contracts for transfers you’re planning further ahead, and help you understand how today’s rate movements might affect your specific situation.
Contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
