Markets remain turbulent after we saw the most volatile day in oil trading history yesterday.
Brent crude prices spiked to nearly $120/barrel yesterday morning (see chart below) - its highest levels since June 2022 - as the Iran war escalated over the weekend. Markets grew increasingly concerned about the possibility of a prolonged disruption to oil shipments through the Strait of Hormuz.
However, market sentiment improved later in the day after reports that G7 nations are considering a coordinated release of emergency oil reserves in an effort to stabilise prices. The speculation alone was enough to cool the rally in crude oil prices. Then last night we had comments from Trump hinting that the operations against Iran could end soon, stating that "the war could be over soon”. This triggered a further relief rally, as traders began to look ahead to a possible de-escalation, which led to oil prices dipping back down to around $90, a surge in equity markets, and a weaker USD.
As a result, the improved market risk appetite has pushed the GBP/USD up nearly 2-cents from yesterday's low and it currently trades around a 10-day high. The GBP/EUR remains buoyant and continues to trade around a 1-mth high. The EUR/USD has rallied around 1.3% from yesterday’s low and hit a 1-week high this morning.
Looking ahead, there are some key data releases to come out this week, such as US inflation (tomorrow) and UK/USD GDP (Friday). However, these releases may attract less attention than usual as the data is pre-war and therefore old news. Instead, markets will likely remain focussed on developments in the war this week with a bit of an eye on next week’s central bank meeting bonanza (Fed, BoE and ECB) to hear their initial thoughts on the US-Iran conflict and how it may influence the outlook for monetary policy decisions.
