Trump's flip-flopping & continued conflict causes markets to price major rate hikes
US President Donald Trump said on Saturday that they will “obliterate” Iran’s power plants, starting with the biggest one, if they refuse to open the Strait of Hormuz within 48 hours.
The Jerusalem Post reported early Monday that the US is considering launching a ground military operation to seize the Iranian island of Kharg. A US official confirmed to the Post that “the US military has accelerated the deployment of thousands of Marines and Navy personnel to the Middle East.”
GBP:
GBP/USD faces some selling pressure near 1.3320 during the early Asian session on Monday, pressured by risk-off sentiment. Ongoing conflicts in the Middle East fuel demand for safe-haven currencies such as the US Dollar (USD) and create a headwind for the major pair.
UK Prime Minister Keir Starmer, Bank of England Governor Andrew Bailey and Finance Minister Rachel Reeves are scheduled to attend an emergency meeting on the economic fallout from the war in Iran on Monday, the government said.
The Bank of England (BoE) kept interest rates steady at 3.75% at its March meeting on Thursday, as widely expected. Bank Governor Andrew Bailey said that the Middle East conflict will cause a "shock to the economy" that will push up inflation in the near term, adding that restoring safe shipping through the Strait of Hormuz is key to addressing energy price rises.
EURO:
Traders expect the ECB to hike rates as early as April due to rising inflation risks from energy shocks.
The EUR/USD pair loses ground to around 1.1560 during the early Asian trading hours on Monday. EUR weakened against the USD as heightened geopolitical tensions in the Middle East have spurred volatility and weighed on the riskier assets. The European Central Bank officials are set to speak later on Monday.
The Central Bank decided to keep interest rate on hold at its latest monetary policy meeting on Thursday, saying the war in Iran has made the outlook “significantly more uncertain." Policymakers said the conflict had created “upside risks for inflation and downside risks for economic growth,” prompting traders to up bets on potential ECB rate hikes later this year.