Central banks in the EU, US and UK kept interest rates steady last week as they assess the economic fallout from the continuing US-Iran war
Crude oil prices fell late last week but remain over $100 a barrel after an earlier surge, adding to inflationary pressures around the world. The Bank of England (BoE), European Central Bank (ECB) and Federal Reserve (Fed) all chose to keep interest rates unchanged last week, maintaining a “wait and see” position on the fallout from the continuing closure of the Strait of Hormuz. Interest rate hikes in the UK and eurozone are increasingly expected later in the year, however.
For now, President Trump has cast doubt on the likelihood of an imminent peace deal in the Middle East, despite receiving an updated proposal from Iran. With uncertainty continuing, the euro recovered earlier losses and ended the month around 1.19% up against the dollar. The pound did even better, strengthening by around 2.28% against the dollar between 1 – 30 April. The pound gained over 1% against the euro in the same timeframe.
All change at the Fed
Kevin Warsh is likely to be confirmed as the next chairman of the Fed this month, and is expected to follow a more dovish agenda than current chairman Jerome Powell. While Warsh told lawmakers that he will not be President Trump’s puppet, the White House clearly hopes to see faster, deeper rate cutting than would have been the case under Powell. The new chairman’s job has been made more difficult by inflationary pressures caused by the US conflict with Iran, and any cuts to interest rates in the current climate are likely to undermine the strength of the dollar and boost the euro and pound.
The week ahead
Markets will be looking for signs of renewed hostilities in the Gulf after both sides rattled sabers over the weekend. Key data this week includes US factory orders and employment statistics (Thursday, Friday), while in Europe, focus will be on Germany’s balance of trade (Friday), EU retail sales (Thursday) and UK house prices (Friday).
