We’re back to ‘is it or isn’t it’ as both sides in the US-Iran war make conflicting claims about the state of the current ceasefire. Peace negotiations may move markets this week – if they happen
Both the euro and pound strengthened in the second half of last week as markets reacted to news of the reopening of the strait of Hormuz as part of an Iran-US ceasefire deal. But as we head into a new week, the status of the crucial waterway is shrouded in confusion. Iran has pledged to keep the strait closed until the US ends its naval blockade of Iranian ports.
The euro is up 1.5% on the dollar since the start of April. That’s partly due to investors selling the safe-haven dollar in response to the ceasefire, and partly due to markets pricing in interest rate rises in the eurozone. Whether that momentum holds will depend to some extent on the outcome of new peace negotiations between Iran and the US that were due to be held on Monday night but may now be in doubt.
The pound also rises
The pound has also clawed back some value against the dollar in April, and is now up around 1.9% over the month. The recent recovery may be short lived if peace negotiations stall and investors fear a prolonged Middle Eastern war. The conflict is already causing problems for the UK economy and is likely to hamper growth. But the Bank of England (BoE) has also indicated that an anti-inflationary rate rise is not imminent after new statistics suggested the economy was in better shape in the weeks before the war than previously thought.
The week ahead
Needless to say, investors will be focused on the outcome of any peace negotiations, and President Trump’s latest threat to attack Iranian infrastructure if a deal is not signed. Away from the war, unemployment and inflation rates in the UK (Tuesday, Wednesday), and PMIs (Purchasing Manager Index – snapshots of economic confidence) across the EU and US (Thursday) warrant attention. Also in the US, retail sales (Tuesday) will be closely watched for signs of underlying economic strain.
