The start of Tuesday’s session saw GBP decline to both USD and EUR. GBP/USD reached a four-month low, while GBP/EUR was close to a one month low, as the morning progressed, we have seen small recoveries.
The issue the UK and GBP are facing is that being a net energy importer, meaning we rely heavily on foreign resources sterling is vulnerable to energy price fluctuations. Overnight an Iranian drone hit a fully loaded Kuwaiti oil tanker off Dubai. Accordingly, to news reports, holding 2m barrels. Even if the situation seems to be under control, it shows that the Middle Eastern conflict is not moving towards a solution of agreement and peace.
As well Donald Trump has opened that an ending to the military campaign against Iran is not off the table. This would be seen as a surrender to Iran and a likelihood that the strait of Hormuz would be in control of Iran moving forward.
Potential tariffs from the Iranian regime have been stated on oil tankers to pass through the strait, with figures in the region of $60B annually to hit oil companies. This cost is likely to be passed to the consumer and inflation levels are therefore under pressure to remain high.
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