Economic Update

27 April 2026

Peace talks fail to materialise, oil prices surge again

Iranian negotiators departed Pakistan before the US delegation arrived, prompting the US President to state that peace talks were off and instruct his team to return to Washington. Energy markets responded negatively, with oil prices rising once again.

Near term risks continue to tilt towards a further deterioration in relations. The fragile ceasefire between the US and Iran looks vulnerable to renewed strain this week. At the same time, blockades involving the US and Iran remain in place in the Strait of Hormuz. These conditions continue to support higher oil prices, particularly as diplomatic efforts falter.

Higher oil prices reinforce downside risks to growth alongside upside risks to inflation. These dynamics remain particularly relevant for the central bank meetings scheduled this week.

US Fed meeting in focus amid mixed economic signals

The US Federal Reserve announces its monetary policy decision this week following a run of data that suggests growth has held up better than expected. At the same time, survey evidence continues to point to broader weakness in consumer and business confidence.

This mix complicates the policy backdrop. For the April meeting, the Fed has not yet accumulated enough information to reach a definitive assessment of the outlook, in my view. As a result, markets are likely to focus less on the decision itself and more on how the Fed frames risks going forward.

Among major central banks, the Fed remains one of the few where markets still price in the possibility of interest rate cuts. Any indication that the likelihood of cuts is diminishing could provide renewed support for the US dollar. More broadly, weekend events, including the security scare at the Correspondents Dinner attended by President Trump and his team, may reinforce a cautious, risk‑averse market tone.

Can sterling defend its gains against the euro?

UK domestic politics remained in focus over the weekend. Media attention surrounding the hiring of Peter Mandelson faded, but speculation has since turned to whether the Prime Minister might replace the Chancellor in an attempt to improve Labour’s polling position.

Markets could find such a move problematic for two reasons. First, despite a complicated relationship with bond markets, the Chancellor’s most recent Budget was reasonably well received and appeared to stabilise borrowing costs before the inflationary impact of the US Iran conflict materialised. Second, it remains unclear who could replace her in a way that reassures bond markets while also satisfying internal party dynamics. If this story proves credible, it could weigh on both gilts and sterling.

Alongside political developments, the Bank of England meets this week. No policy change is expected, but questions persist around the Bank’s ongoing programme of quantitative tightening. In the current environment of elevated inflation, depressed bond prices and higher yields, pausing QT would appear reasonable, in my view. Continuing with the programme risks amplifying losses unnecessarily, with potential consequences for public finances and the pound.

The Bank will also update its forecasts for growth, inflation and unemployment. Taken together, these projections are likely to present an uncomfortable backdrop for sterling.

ECB set to pause as surveys weaken further

The European Central Bank looks set to leave interest rates unchanged this week as activity indicators continue to soften. Survey data point to a deteriorating growth outlook, while inflation risks appear relatively contained for now.

April CPI and first‑quarter GDP figures are due ahead of the decision. Headline inflation is likely to edge higher, while GDP data may only hint at the early stages of weaker activity. As a result, the figures may offer limited clarity on the broader outlook.

If the data deliver a combination of softer growth alongside firmer inflation, the euro could come under renewed pressure.

Canada budget update and central bank meeting, Mexico growth under strain

Canada’s government will update its assessment of the public finances this week. Higher inflation‑driven spending and weaker growth threaten to challenge the fiscal outlook, although increased reliance from the US on Canadian energy and commodities could offset partially.

The Bank of Canada also meets, with little scope for action given the current data. As elsewhere, markets are likely to pay more attention to commentary on the outlook than to the decision itself. With global risk appetite subdued, further Canadian dollar strength appears difficult to sustain.

In Mexico, first‑quarter GDP data are expected to disappoint ahead of the next Banxico decision. Weaker vehicle exports and rising energy costs continue to weigh on domestic activity, with implications for growth in coming quarters. These pressures could place additional constraints on any appreciation in the peso.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.