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2026-05-27 18:33:33
[Iranian uncertainty limits pound's upside potential; UK energy price cap slashed by 13%, but supermarket inflation falls to 3.1%] ⑴ The pound weakened against the euro for the second consecutive trading day, remaining relatively stable against the dollar at 1.3452. Uncertainty surrounding the Middle East peace process kept traders cautious. While the nearly 7% drop in oil prices this week provided some respite for import-dependent currencies like the pound, the overall trading range was narrow and volatility was subdued, reflecting a lack of clear trading direction among investors. ⑵ On Wednesday, the UK energy regulator Ofgem slashed its energy price cap by 13%, the largest increase in over two years, mainly due to the Middle East conflict pushing up wholesale gas prices. Kathleen Brooks, head of research at XTB, pointed out that the increased use of renewable energy in the UK meant that this price cap increase was less than that during the 2022 Ukraine crisis. If a peace agreement is reached in the coming days and the Strait of Hormuz reopens, energy prices could fall further, thus limiting future bill increases. (3) Regarding supermarket inflation, Worldpanel data shows that in the four weeks ending May 17, the UK grocery inflation rate slowed to 3.1% from 3.8% in the previous period, the lowest pace since December 2024. However, the full impact of the Iranian conflict has not yet been fully transmitted to supermarket prices. Money market data indicates that traders expect the Bank of England to raise interest rates once this year, with a less than 50% chance of a second rate hike, suggesting that market concerns about the impact of inflationary pressures on the economy have eased compared to two weeks ago.
