The US Dollar has held its position near a two-month high as markets and investors assess the implications of fresh U.S strikes on Iran, as well as stronger than expected inflation for the U.S.
Risk within market sentiment remained cautious after further U.S strikes on Iranian territory overnight. Donald Trump also threatened more strikes were being prepared if a deal could not be agreed. As a result, Tehran have also announced a halt to all vessel traffic through the Strait of Hormuz which has again led to Oil prices climbing even higher.
U.S consumer prices last month also accelerated, piling more pressure on expectations that The Federal Reserve could lean towards keeping interest rates higher for longer. Overall inflation consumer prices rose at their fastest pace in more than three years, again driven largely by higher energy costs being influenced by the ever-developing conflict in The Middle East. Markets are currently expecting at least one rate hike by the Federal Reserve before the end of 2026.
Turning our attention to Central Bank decisions, The Bank of Canada kept their rates unchanged as expected, sighting a drop in Government Spending, a slump in the housing market and weak business investment as reasons to keep rates unchanged. In summary, the central bank is willing to take its time to assess the risks to growth and inflation from increased oil prices and trade uncertainty before committing to any rate deviation.
We then move nicely onto the European Central Banks interest rate decision this afternoon. It’s widely expected that the central bank will raise their rates by 25 basis-points, which would mark the first increase since September 2023. This is mainly due to growing concerns around the inflationary impact from the energy shock which has been caused by the Middle Eastern war and disruption of shipping routes. The ECB have also faced a slightly different landscape this month as Eurozone Inflation climbed to 3.2% in May, up from 3% in April, whilst Core Inflation figures also rose to 2.5% which again only cements the concerns that higher energy prices are now transitioning into general inflation.
GBP/EUR 1.1575 GBP/USD 1.3365 GBP/AED 4.9115
GBP/AUD 1.9107 GBP/CHF 1.0681 GBP/CAD 1.8671
GBP/NZD 2.3100 EUR/USD 1.1531 GBP/ZAR 22.1203