Sterling firm despite oil shock, hot US inflation

The Pound Sterling remained firm on Wednesday, even though the Middle East conflict entered its twelfth day of hostilities. Inflation in the US boosted the greenback’s prospects, yet the GBPUSD pair traded at 1.3400, virtually unchanged.

The market mood was mixed as traders digested the latest developments of the US, Israel and Iran conflict. Iran’s military commented that the world should be prepared for oil to hit $200 a barrel, after three vessels were attacked on Wednesday.

In response, the International Energy Agency (IEA) recommended releasing 400 mln barrels of oil to temper soaring prices amid the Middle East conflict.

Aside from geopolitical jitters, the US consumer price index (CPI) in February came as expected, with headline inflation rising 2.4% YoY, unchanged from January’s print. Excluding volatile items, the so-called core CPI rose by 2.5% YoY, as expected, aligned also with the previous month’s number.

Traders trimmed bets on a Federal Reserve rate cut in 2026 following the CPI release, as depicted by Prime Market Terminal. Money markets expect 30 basis points of easing towards December.

In the UK, the Chancellor Rachel Reeves said it’s too soon to take measures to shield households from soaring energy prices spurred by the Middle East conflict.

The docket in Britain was absent, yet Oxford Economics estimates the UK inflation could be 0.4% higher if the Strait of Hormuz remains shut for up to two months.

This week, the UK economic schedule will feature a speech by Bank of England Governor Andrew Bailey. In the US, traders’ focus shifts to Initial Jobless Claims, the Balance of Trade, and housing data.

(Source: OANDA)