Energy prices are once again in the spotlight after peace talks between the US and Iran broke down and President Trump threatened his own blockade of the strait of Hormuz. Inflationary pressures could push central banks into rate hikes, bringing volatility to money markets.
Analysts expect oil and gas prices to rise again this week after peace talks between the US and Iran ended in failure. Rising energy prices will stoke fears of inflation, and increase the likelihood of interest rate hikes in the UK and Europe.
We’ll have to wait and see what the failure of negotiations mean for money markets. The euro had been strengthening against the dollar at the end of last week after the US-Iran ceasefire was announced, reaching its highest level since the start of the war. The pound also edged up against the dollar. But the recovery of European currencies could be short-lived if investors fear a resumption of hostilities and the prolonged closure of the strait of Hormuz.
The dollar falters
The dollar had been weakening last week on the back of peace talks in the Middle East and some worrying economic indicators at home. Consumer sentiment plunged to a record low in April, and US inflation pushed up to 3.3%, the highest since 2024. Inflationary pressures may persuade the Federal Reserve (Fed) to keep interest rates higher for longer. Across the Atlantic, investors are now pricing in interest rate hikes in the UK and EU.
The week ahead
Developments in the Middle East will again be the focus this week as investors weigh the chances of a lasting peace agreement and the opening of the strait of Hormuz. Neither seems likely at the start of the week. Important data this week includes final inflation figures for March in the UK and EU (Thursday), alongside trade balances (Thursday in the UK, Friday in the EU). In the US, March producer price index (PPI) figures (Tuesday) will show how the conflict in the Middle East is impacting factory gate prices.
