Tuesday was not full stacked with economic data, it did not stop markets from being active. We can see continuing strength from safe haven currencies, particularly the USD. The escalation in the Middle East are driving fears on continuing inflationary pressure on oil and gas.
Energy markets have been a key driver of recent moves. Brent crude oil is at its highest level since July 2024, while UK wholesale gas prices have jumped to the highest level since October 2022. Despite this, sterling has remained relatively stable against several non-dollar currencies. One reason is that rising energy prices are raising concerns that inflation could remain elevated globally. If inflation stays higher for longer, central banks may have less room to cut interest rates.
For the United Kingdom, this could mean the Bank of England keeps interest rates higher for longer than previously expected. Earlier this week, UK government bond yields rose sharply, with the two-year gilt yield climbing to around 3.74 percent. Market expectations for interest rates have also shifted quickly. At the end of last week, investors believed there was around an 80 percent chance that the Bank of England would cut rates at its March 19 meeting. By Tuesday evening, that probability had fallen to below 25 percent.
Meanwhile, the U.S. dollar remains close to a three-month high, with the Dollar Index trading around the 99 level. The euro has weakened toward $1.15 as rising energy prices weigh on the European outlook.
GBP/EUR 1.1496 GBP/USD 1.3386 GBP/AED 4.9096
GBP/AUD 1.8931 GBP/CHF 1.0446 GBP/CAD 1.8269
GBP/NZD 2.2575 EUR/USD 1.1625 GBP/ZAR 21.8509