Sterling is holding close to recent highs against the Euro and has rebounded against the Dollar.
Currency markets remain focused on oil prices and developments in the Iran conflict, reacting positively to indications that the US may soon step back from the war and that regional oil flows are increasing.
There are also signs of more Iran-sanctioned vessels moving through the Strait of Hormuz, while shipments from Iraq’s Kirkuk oil fields to Turkey’s Ceyhan port have resumed after Baghdad and the Kurdistan Regional Government reached an agreement on Tuesday to restart pipeline exports.
President Donald Trump said overnight that the United States could bring the war with Iran to an end “in the near future.”
His remarks reinforce expectations that Washington is unlikely to escalate the conflict further, easing concerns about a sharp spike in energy prices that could push the global economy toward recession.
In response, the Dollar has weakened against both the Euro and the Pound, with GBP/USD rising to 1.3363 on Wednesday from 1.3225 on Monday, while EUR/USD climbed to 1.1537 from 1.1414, Pound Sterling Live reports.
GBP/EUR has remained broadly steady at 1.1580, although there are signs the pair may be losing upward momentum.
Looking ahead, the outlook for the Pound is mixed if tensions continue to ease. It could strengthen further against the Dollar as safe-haven demand fades, but may drift lower against the Euro as the exchange rate normalises.
Overnight, Iranian strikes continued, with a new wave of missile and drone attacks targeting the United Arab Emirates, Saudi Arabia, and Kuwait.
The Strait of Hormuz remains largely closed to traffic, although Iran has allowed some vessels to pass, indicating it is selectively controlling access. This raises the possibility of further arrangements with countries it considers friendly, permitting their cargo shipments to transit through the Strait.
Even if the US eventually steps back, that doesn’t guarantee Iran will follow suit, leaving the risk of prolonged disruptions to global energy supplies firmly in place.
That said, markets appear to be adjusting to this reality, pricing in a scenario of persistently elevated energy costs. The expectation is that while higher oil prices will push inflation upward, the increase is unlikely to be severe enough to tip the global economy into recession.
“While we do not see a particular oil price level associated with a recession, all previous recessions saw sharp oil price increases, at least a doubling. By our estimate, a move to USD 135/bbl for Brent oil price would be a level at which markets start to focus more on growth than inflation risks,” said Madhur Jha, Global Economist at Standard Chartered.
If currency markets have indeed found a point of balance, it could signal that the Dollar has already peaked.
In turn, this may also suggest that GBP/EUR has topped out just below the 1.16 level.