Energy Attacks & CPI Data Set a Volatile Tone for Markets.
Summary
All three major central banks held rates last week, but the conflict escalated sharply with Israeli strikes on Iran's South Pars gas field and Iranian retaliation against Qatar's LNG infrastructure, sending energy prices to new highs
US producer prices surged well above expectations in February, adding to concerns that inflation is moving in the wrong direction
Flash PMIs for the US, UK and Eurozone are due this week, offering the first read on how business activity has responded to the conflict
UK CPI for February is released Wednesday, with the BoE watching closely for signs that energy costs are feeding through to consumer prices
The conflict entered a new phase last week. Israeli strikes on Iran's South Pars gas field on 18 March prompted Iranian retaliation against Qatar's Ras Laffan LNG complex, a critical source of gas supply for both Europe and Asia. Energy prices surged further in response. The escalation has reinforced a risk-off tone across global markets, with the dollar continuing to benefit from its safe-haven status while both sterling and the euro remain under pressure from the inflationary and growth implications of rising energy costs.
All three major central banks held rates unchanged as expected. The Federal Reserve voted to hold at its current range, with one dissenting vote in favour of a cut. US producer prices rose well above forecasts in February, pushing the annual rate to 3.4%, and the dollar found support from the view that the Fed has limited room to ease in the near term.
The Bank of England voted unanimously to hold at 3.75%, explicitly citing the elevated inflation risk from the energy shock. Sterling remains caught between a weak domestic growth backdrop and the prospect that higher energy costs push rate cuts further out, keeping the pound in a difficult position heading into this week's data.
The ECB held at 2.0% and revised its 2026 inflation forecast sharply higher, removing what had been a lingering expectation of further easing. Markets have moved to price out cuts and in some cases price in hikes, giving the euro a degree of support. However, the growth impact of sustained high energy costs remains a significant headwind for the single currency.
This week brings the first round of March activity data. Flash PMIs for the Eurozone, UK and US are all due Tuesday, and will be the first real-time read on how businesses are responding to the conflict. A deterioration in any of the major readings would reinforce stagflationary concerns and add pressure to the respective currency. For sterling in particular, any weakness in the UK services PMI alongside Wednesday's CPI release could set the tone for expectations around the April Bank of England meeting.
UK CPI for February is due Wednesday. January's reading was 3.0%, already above the Bank of England's 2% target, and the February figure will be watched closely for early signs of energy costs feeding into consumer prices. A higher-than-expected print would further complicate the case for near-term rate cuts and could provide short-term support to sterling. UK retail sales for February follow on Friday.
Events to Watch This Week
Tuesday 24 March: Flash PMIs for Eurozone, UK and US (March, preliminary)
Wednesday 25 March: UK CPI (February)
Friday 27 March: UK Retail Sales (February)
Currency markets are operating in conditions that remain highly sensitive to geopolitical developments, energy prices and inflation data simultaneously. Moves can be sharp and sudden. Contact the Orbis dealing team to make sure your upcoming transfers are not left exposed.
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