Volatility follows central bank meetings and Middle East energy attacks

Good morning

US data releases will be one hour earlier at 12.30 or 14.00 London time. 

FX option expiries will be 14.00 London time, not the usual 15.00 London time.

This will be until Sunday 29^th March when we change our clocks in the UK.

BoE chose to keep UK rates unchanged at 3.75% in a unanimous decision yesterday, the risks of higher inflation from rising energy costs the main concern, although Bailey did highlight the risks of softer economic activity and lower wage growth.  For now it seems all members are happy keeping rates on hold with no clear bias towards cuts or rises.  Forecasters pushed back their calls for rate cuts to later in 2026, while some see the chances of a rate rise now outweighs the chances of a cut. 

We all know I’m no economist but I thought the idea of higher rates was to cool runaway demand.  As such I still don’t fully understand how rate rises would really impact higher inflation higher inflation if that inflation came solely from high energy prices.  That is not raising demand in an overheated economy, that would purely be people having to spend more on energy, more a necessity than a luxury, and then be hit with higher rates as well. 

ECB also kept rates unchanged and similar to the BoE are not heading down any particular rate path, as with BoE they are looking not only at inflation but also downside economic risks.  ECB has already had a rate cut cycle and there were already thoughts that the next ECB rate move will be higher, now this seems all the more likely given higher energy prices.

Yesterday was a volatile one, with the US dollar initially seeing demand taking GBPUSD and EURUSD to 1.3245 and 1.1440 but the hawkish tone from central banks saw something of a turn, giving GBP and EUR a bit of a boost.  We then had some mild Middle-East de-escalation comments which pushed US dollar lower still, GBPUSD hit 1.3465 and EURUSD 1.1615, really quite a turnaround.  We’re currently off those levels, now 1.3410 and 1.1565 with GBPEUR just around 1.1600, pretty much matching the Feb highs which in turn were the highest since August 2025. 

The de-escalation talk took oil prices lower with WTI yesterday dropping from a peak of $100.50 to $92.50 and Brent from $119 to $104 although we are off those lows now and clearly risks remain with the ongoing turmoil in the Middle East, with ongoing talk of the potential for prices to hit $200 and with it talk of a global economic slowdown.  AUD has been hit as a result, with GBPAUD now 1.8930 having touched 1.9000 yesterday.  The Times reports Israel believe a regime change in Iran is only possible with troops on the ground rather than just air strikes, adding that, as yet, they are only half way through their goals for military action.  Not exactly de-escalation even if they have suggested they’ll steer clear of energy infrastructure.

Yesterday also brought volatility in gold prices which had been reasonably steady for a while above $5,000 before a sharp sell-off took prices down to $4,500.  Quite what was really behind the move is not clear.  Some say it’s the potential for a more hawkish Fed although the US dollar softened elsewhere.  Higher inflation outlooks also go against the idea of lower gold prices, I can only think that money has moved into oil purchases away from gold which then likely triggered stops, sending gold lower, and idea that is supported in part by gold recovering some of those losses, now $4,700 or so.  Silver prices also took a similar tumble, trading down from around $80 to $65.50, now $73.   I’d mentioned ‘disorderly markets’ way back last year and I see no reason to change this as yet.

Next week brings EU, UK and US PMIs, UK inflation and retail sales and also Aussie CPI, all important and potentially market-moving data although the inflation numbers are almost certainly out of date and therefore may not have the impact it may usually warrant.

Looking ahead to the weekend, Premier League action sees Spurs in a massive bottom of the table clash against Notts Forest, both sides looking for much-needed points.  Aston Villa will be hoping for a return to winning ways against West Ham and again, for Spurs sake I’d rather see Villa take all three points.  Neither Man City or Arsenal are playing League football this weekend so Arsenal’s nine point advantage will remain, with just nine matches remaining.   However the two league rivals instead meet on Sunday afternoon in the League Cup final, an intriguing match in which both sides will be eager to take home the silverware.  In Arsenal’s case, this is the first of a possible quadruple of trophies, they are favourites but never write off Man City.  I’m looking forward to watching this as a neutral.

Weather is turning warmer although the evenings are still chilly, we had 20°c temperatures in the day and a mild frost overnight, but at least we’re feeling a little bit of warmth on our faces now.  Long may it continue.

Have a great day and a great weekend as and when it comes.

-  12.30 CAD retail sales

-  17.30 ECBs Nagel speaks