CAPITALDIGEST MARKET REVIEW 13/07/2026

STERLING CLIMBS TO ONE-MONTH HIGH AS DOLLAR DIPS AS MARKETS WEIGH RATE HIKES 

The pound rose on Friday to an almost one-month high against the dollar and a one-year peak versus the euro as markets mulled central banks’ likely response to ​the latest rise in energy prices stemming from the  Iran. Sterling rose to $1.345 ‌on Friday, the highest since June 15, and was last up 0.1%. Get a look at the day ahead in European and global markets with the Morning Bid Euro newsletter.  Meanwhile the euro fell to 85.18 pence , the lowest against the pound since late June 2025, before paring its losses to trade flat. Analysts have debated ​the reasons for the strength in sterling in recent weeks with better-than-expected growth, foreign ​companies purchasing UK firms, a calming of political instability, and Bank of England policy ⁠all cited. Monex Europe senior FX strategist Barry van der Laan said comments late on Thursday ​from Bank of England chief economist Huw Pill that interest rates will have to rise were likely ​supporting the pound on Friday. “That message reinforced the market’s view that the Bank of England still has less room to look through inflation than the Fed or the ECB,” said Van der Laan. Yet he added: “With no important ​UK data today, sterling is likely to be driven by broader dollar moves, oil prices and ​Middle East headlines. The International Monetary Fund this week upgraded its UK growth forecasts, predicting a 1% expansion in ‌2026. ⁠The outlook for Britain, a major energy importer, has been improved by the June U.S.-Iran deal and subsequent slide in oil prices. The IMF said Britain would be the third-fastest growing economy in the G7 this year behind Canada and the U.S, outstripping the euro zone countries. However, oil prices ​have risen around 5% this ​week as the ⁠U.S. and Iran have traded strikes and the U.S. cancelled an Iranian oil trading waiver. Brent crude was last trading roughly flat at $76 a barrel, ​although it remained well below April’s high of $126.Former Greater Manchester mayor Andy ​Burnham took ⁠a big step to becoming the next prime minister on Thursday after he secured the support of the vast majority of Labour members of parliament to replace Keir Starmer.  Some analysts have said the ⁠clarity on ​the next leader and Burnham’s commitment to the fiscal rules has ​helped the pound slightly, although they caution UK markets could become more turbulent once he starts outlining economic policies. 

DOLLARS SLIPS AS LABOUR MARKET REMAINS STABLE, US-IRAN TENSION FLARES 

The dollar dipped for a second straight session on Thursday as the U.S. and Iran ​carried out renewed attacks, while a stable reading on the labour market kept investor attention on potential inflation pressures.  Iranian armed ‌forces launched attacks on U.S. military infrastructure in neighbouring Gulf states following U.S. strikes on Iran’s southern coastal and eastern provinces, further straining a three-week-old ceasefire agreement. Make sense of global markets with the Trading   Oil prices eased from earlier highs, however, with U.S. crude last down 2.65% to $71.57 a barrel and Brent at $75.72 per barrel, down 2.95% on the day, as ​concerns about higher inflation denting global growth outweighed supply worries.  The dollar index , which measures the greenback against a basket of ​currencies, shed 0.15% to 100.87, with the euro up 0.19% at $1.1436.  “It’s safe to say there’s a lot ⁠of confusion,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto. “You could argue the ​sideways price action, the market is trying to decipher what reality is, but we’re going to trade off the tone of the next ​headline, sadly.” Analysts see the U.S. as more insulated from energy supply shocks compared with other countries, which could force other central banks to hike interest rates at a faster pace than is expected from the Federal Reserve.  The minutes from the Fed’s June 16 to 17 meeting, the first under new Fed Chairman Kevin Warsh, showed concern ​about high inflation mounted among policymakers, and a few participants saw a case to raise interest rates right away.  New ​York Fed President John Williams said on Thursday that despite the resumption of hostilities in the Middle East, he was not looking for a sustained rise in ‌energy prices ⁠over the remainder of the year. Expectations for a rate hike of at least 25 basis points at the Fed’s July 28 to 29 meeting eased back to 26.2% from 31% in the prior session, but up from 18.2% a week ago, according to CME Group’s Fed Watch, opens new tab tool. For the September 15 to 16 meeting, markets are pricing in a 61.7% chance of a hike, down from the 66.6% on Wednesday but an increase ​from the 54.1% a week earlier. European +​Central Bank policymakers gathering last ⁠month were presented with projections showing inflation staying above target into next year despite higher interest rates, accounts of the meeting showed on Thursday. On the U.S. economic front, weekly initial jobless claims dipped by 2,000 ​to 215,000, below the 218,000 estimate of economists polled by Reuters, indicating the labour market remains on ​stable footing.  Against the ⁠Japanese yen , the dollar weakened 0.18% to 162.30. The Bank of Japan said the Iran war is likely to goad more firms to raise prices later this year, signalling caution over mounting inflationary pressures that could bolster the case for further rate hikes.   

POUND NUDGES AT FOUR-WEEK HIGHS; VOLATILITY PICKS UP 

 The pound rose on Thursday, as the dollar backed off the previous day’s highs in line with a modest retreat in the oil price, leaving sterling ​around its highest in four weeks. Sterling was last up 0.1% on the day ‌at $1.34. It has risen by over 2% since hitting a seven-month low in late June, in the wake of Labour Prime Minister Keir Starmer announcing he would step down. Get a look at the day ahead in European and global markets with the Morning Bid Europe newsletter.  Britain is more dependent on energy imports ​than many of its neighbours, meaning UK markets are likely to be more sensitive ​to big swings in the oil price. With the drop in oil since ⁠the peaks above $120 a barrel back in May, traders believe there is a far lower ​chance of the Bank of England raising interest rates this year than they did previously. Money markets ​show traders believe there will be at least one rate hike this year from the BoE, with the chances of a second currently around 25%. A few weeks ago, as many as three were priced in ​at one point. NY said energy-driven supply shocks could prove beneficial to sterling “on the margins”. The ​UK stock market has a number of heavyweight oil and gas shares that would benefit from reacceleration ‌in ⁠crude prices. Our flow data show that domestic purchases have been highly consistent due to positive real rates. It’s the international component that’s currently limiting sterling’s potential, mostly due to concerns over potential growth and politics,” BNY strategists said in a note. Sterling has been more volatile than most ​other major currencies this ​week, in part ⁠due to heightened political uncertainty over who Andy Burnham, the UK’s next likely prime minister, may pick as his finance minister.  Overnight implied volatility, a ​measure of trader demand for protection against sudden shifts in the ​value of ⁠the pound, is around 6% , second only to the euro , where overnight implied vol is at 6.5%.The pound has been forging higher across the board over the last few weeks. The euro , which ⁠on ​Thursday was steady at 0.853 pounds, is around its ​weakest in a year against sterling, while the Japanese yen is close to its lowest in over 18 years . 

STERLING STEADY AS US-IRAN TENSION FLARES UP AGAIN  

The pound held steady on Wednesday as U.S. President Donald Trump said that an interim agreement to end the war with ​Iran was “over” after Tehran carried out new attacks on U.S. bases in ‌the Gulf. Brent crude futures jumped after Trump’s comments, made before a NATO summit in Turkey, and were last up 5.61% to $78.36 a barrel. The reaction in currency markets was ​relatively muted, with the U.S. dollar index last little changed on ​the day. Sterling was largely flat at $1.3351, having hit its highest ⁠level since June 17 against the greenback on Tuesday. Against the euro, the ​pound was a touch weaker on the day at 85.47 pence. That left ​sterling just shy of recent 13-month highs against the euro. Domestic issues were also in focus, with former Greater Manchester mayor Andy Burnham widely expected to succeed Keir Starmer as ​prime minister later this month. We still don’t know an awful lot about ​the policies of Burnham, assuming that he is the next Prime Minister,” Jane Foley, ‌head of ⁠FX strategy at Rabobank, said. “And we certainly don’t know who his cabinet picks are going to be,” she added. Markets are especially wary of what a new government could mean for Britain’s stretched finances and are waiting to ​see who the ​next finance minister ⁠will be. Online betting platform Polymarket was last indicating a 51% chance of left-leaning former energy minister Ed Miliband ​taking on the role. “Who is going to be Chancellor is ​going ⁠to give signals to the market as to whether or not we are going to see a chancellor that will try and tighten those purse strings ⁠or not,” ​Foley said.  

DOLLAR FADES AFTER TOUCHING ONE-WEEK HIGH AS IRAN DEAL IN DOUBT  

 The U.S. dollar dipped after reaching its highest level in about a week on Wednesday after ​U.S. President Donald Trump said an interim memorandum of understanding signed with Iran to end their conflict was “over”, ‌while investors digested the minutes from the Federal Reserve’s recent meeting. Trump said an interim agreement to end the war with Iran was “over” and that the United States was likely to launch new strikes on However, Trump also said he did not expect a ​return to full-fledged war, and it was not immediately clear whether the negotiations on reaching a permanent deal would carry ​on .Oil prices jumped, with U.S. crude up 4.36% to $73.51 a barrel and Brent climbing to $78 per barrel, up 5.23% ⁠on the day. U.S. Treasury yields also climbed. The dollar index , which measures the greenback against a basket of currencies, fell 0.2% to 100.98 ​after earlier climbing to 101.27, with the euro up 0.12% at $1.1425. night following Iranian attacks on U.S. bases in the Gulf. The positioning is a little crowded on the long side, what that tells me ​is dollar strength is fully pricing in this idea that the Fed’s going to get in here and raise rates and support rate differentials for the U.S. It’s also largely priced in geopolitical risk,” said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas, who also noted the greenback has ​seen strong gains from its late January low this year. “It just leaves the dollar in a spot where it could be a ​little susceptible for corrections. “Expectations for a rate hike of at least 25 basis points from the Fed at its July meeting inched up to 30.5% from 26.7% ‌in the ⁠prior session, while odds for the September meeting rose to 65.7% from 61.9%, according to NEW ZEALAND HIKES RATE, FED MINUTES IN FOCUS Meanwhile, the New Zealand dollar strengthened 0.49% versus the greenback to $0.5705 although it was off its earlier highs, after the Reserve Bank of New Zealand hiked rates by 25 basis points to 2.5% to curb inflation pressures, as most economists had expected. It said that “Some further reduction in monetary stimulus is likely to ​be required” to control inflation. Analysts at ​Goldman Sachs said in a ⁠note that they see the start of a hiking cycle in New Zealand, “albeit a short one” as a positive for the currency “and part of the broader catch-up in macro conditions and monetary policy to many ​of its G10 peers. “Minutes from the Federal Reserve’s June meeting, and first under new Chair Kevin Warsh, showed ​concern about high ⁠inflation mounted among policymakers, and a few participants at the June 16-17 meeting saw a case to raise rates right away. “You kind of still have to lean a little bit to the risk that they have a chance for a rate hike later in the year,” said Urano. Against ⁠the Japanese ​yen , the dollar strengthened 0.23% to 162.46 and was on track for a ​fourth straight daily advance as traders remained on guard for signs of a possible intervention from Japanese authorities. Sterling strengthened 0.37% to $1.3401 after hitting a three-week high of $1.341.