Economic Update

25 May 2026

Geopolitics dampens early optimism

Over the long weekend, optimism increased that an interim agreement between the US and Iran could lead to the re-opening of the Strait of Hormuz. On Saturday, President Trump stated that an initial agreement, described as a “memorandum of understanding”, had been “largely negotiated”, while Iranian spokesperson Baghaei characterised negotiations as “very close and very far”. Markets reacted in a typical risk-sensitive manner, with Brent crude falling to $96 per barrel on the bank holiday Monday, its lowest level in nearly three weeks, and GBP/USD rising to a 10-day high.

That momentum has since faded. Reports indicate the US has launched “self-defence” military strikes targeting Iran’s missile launch sites and mine-laying vessels. The US administration stated that the operations aim to protect American troops in the region. Brent crude has rebounded to $99 per barrel, while the dollar has strengthened by around 0.2% against both the pound and the euro.

Following the strikes, US Secretary of State Marco Rubio stated that a deal remains possible, pointing to talks resuming on Tuesday in Doha. However, Iranian spokesperson Baqai indicated that a deal is not imminent, while Trump has reportedly instructed negotiators “not to rush into” an agreement. The situation remains fluid.

ECB signals further tightening

ECB member Schnabel stated that the ECB should raise rates next month, even in the event of a resolution in the Middle East. She noted that “given the size and persistence of the current shock, looking through is no longer an option in my view… from today’s perspective, I think a rate hike in June will be needed.” She also highlighted that even if the conflict were to end immediately, significant disruption to energy infrastructure and global supply chains has already occurred.

The next ECB decision is scheduled for 11 June, with markets currently pricing a 91% probability of a rate increase, according to Bloomberg.

GBP/EUR tests resistance

On Monday, GBP/EUR tested the 1.16 level, a key area of resistance that has capped gains on several occasions since June 2025.

With a potential leadership challenge for the Prime Minister should Andy Burnham win the Makerfield by-election next month, sterling is unlikely to have sufficient momentum to sustain a break above this level under current conditions.

Looking ahead this week

Geopolitical developments are likely to remain the primary driver of market direction. In addition, several scheduled economic releases and central bank speakers could influence sentiment.

Today

US Conference Board consumer confidence

Thursday

Remarks from several ECB and Bank of England members, including Lagarde

US GDP, PCE inflation, personal income and spending

Friday

Bank of England Governor Bailey speaks

Remarks from several FOMC members

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.