Home Daily Commentaries Markets on Edge Amid Escalating Middle East Tensions

Markets on Edge Amid Escalating Middle East Tensions

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Monday 12 August, 2024

Daily Currency Update

The Euro has been treading water, holding firm against both the US Dollar and the Pound. Over the weekend, ECB officials expressed concerns about persistently high inflation and sluggish growth in major European economies. While the Euro has managed to retain last week's gains, further upside momentum appears challenging at this time.

In the UK, the Pound continues to climb on improved market sentiment, buoyed by robust economic data, despite inflation remaining elevated. Bank of England Monetary Policy Committee member Catherine Mann noted that prices for goods and services are likely to rise again, and wage pressures in the UK could take years to subside.

The US Dollar was bolstered last week by escalating tensions in the Middle East, prompting investors to seek safe-haven assets. Additionally, ten-year US Treasury bond yields approached 4% after rising the previous week, reflecting the market's cautious stance as unrest in the region intensifies.

Key Movers

The ECB is expected to cut rates twice more this year, with a total reduction of 50 basis points. While inflation is anticipated to return to the council's 2% target, ECB officials have been cautious about committing in advance and have suggested that any future rate cuts would depend on economic data. Finnish policymaker Olli Rehn indicated that the path back to 2% could be bumpy and added that, if the expected rate cuts materialize, they should help support Europe's struggling manufacturing sector.

In the UK, investors will be closely monitoring the release of employment data on Tuesday and consumer price inflation on Wednesday. Employment is expected to rise to 4.5% from the previous 4.4%, while markets anticipate a significant drop in wage pressures, with forecasts of a decrease to 4.6% from the previous month’s 5.7%. If prices don't fall as much as expected, the Pound could strengthen this week.

In the US, markets now see a 50/50 chance of the Federal Reserve cutting rates by 50 basis points at their upcoming September meeting. Fed Governor Michelle Bowman stated that "should the incoming data continue to show price pressure easing back to 2%, it will be appropriate to gradually lower borrowing costs in the US to avoid restricting employment and economic activity."

Expected Ranges

  • GBP/USD: 1.2740 - 1.2790 ▲
  • GBP/EUR: 1.1670 - 1.1715 ▲
  • GBP/AUD: 1.9330 - 1.9385 ▲
  • EUR/USD: 1.0895 - 1.0940 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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