The biggest currency story of the weekend came from the Middle East. The US paused almost two weeks of strikes against Iran late on Friday, and Tehran halted its retaliatory military response in turn, triggering a relief rally across markets this morning. Brent crude fell as much as 7% on the news, dropping below $90 a barrel before recovering slightly. That is a significant move that has rippled through currency markets, weakening the dollar as safe-haven demand faded and giving the pound and euro room to breathe.
It is also one of the most important weeks of the year for interest rates, with the Federal Reserve deciding on Wednesday and the Bank of England on Thursday. Both decisions could move your rate significantly before the week is out.
Latest market insights:
Pound to euro:
Sterling is holding near its strongest level in over a year
- The pound started the week near its strongest level against the euro in over a year, having retreated slightly from July’s peak as UK fiscal concerns and volatile energy prices weighed. This morning’s fall in oil prices is a positive development for sterling. Lower oil prices reduce inflation expectations, which reduces the pressure on central banks to keep raising rates. That eases some of the uncertainty that has been holding the pound back in recent weeks.
- Thursday’s Bank of England decision is the most important event of the week for GBP to EUR. The Bank is expected to hold rates at 3.75%, though a minority of policymakers are likely to vote for a hike, reflecting ongoing concern about inflation. Any shift in that vote could move the pound quickly. A more hawkish split than expected would support sterling. A unanimous hold could take a little steam out of it.
- 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 and two major central bank decisions this week, now is a good moment to speak to our team about protecting your rate. Call us on +44 (0)204 506 5672.
US dollar to euro:
The dollar has weakened as Middle East tensions ease
- The dollar weakened this morning as the pause in US-Iran hostilities reduced demand for it as a safe place to park money. When uncertainty falls, investors tend to move out of the dollar and into other currencies, which supports both the pound and the euro. Wednesday’s Federal Reserve decision will be the key test. Markets are currently pricing roughly a 50% chance of a rate hike, making the tone of Fed Chair Kevin Warsh’s press conference just as important as the decision itself. A hawkish message would likely push the dollar higher again. A more cautious tone could weaken it further.
Pound to US dollar:
Sterling has found support but faces a big test this week
- The pound has recovered around 2% against the dollar since its June low, supported by improving UK data and rising expectations of a Bank of England rate rise. This morning’s easing in Middle East tensions has provided some additional support. However, with the Fed and the Bank of England both deciding within 24 hours of each other on Wednesday and Thursday, this pair could move sharply in either direction before the week is out.
What to watch this week:
Wednesday 29 July:
- Federal Reserve interest rate decision. Markets are split on whether the Fed raises rates. Whatever the decision, Fed Chair Warsh’s comments on what comes next will be closely watched. Any signal of further tightening would support the dollar and put pressure on both GBP to USD and USD to EUR.
Thursday 30 July:
- Bank of England interest rate decision, alongside the Bank’s quarterly Monetary Policy Report. A hold is expected, but the vote split and the Bank’s forecasts for growth and inflation will be the things to watch. A more hawkish outcome than expected could push GBP to EUR higher. A dovish surprise could reverse some of the pound’s recent gains.
- US GDP and PCE inflation data also land on Thursday morning, the day after the Fed decision. PCE is the Fed’s preferred measure of inflation. A higher-than-expected reading could quickly reverse any dollar weakness from Wednesday and add pressure on GBP to USD.
Middle East:
- Diplomatic efforts continue, with Trump reportedly open to renewed peace talks. Any sign of further progress would likely push Brent lower and ease inflation expectations. A fresh escalation would do the opposite, quickly reversing this morning’s moves.
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.
