#andrew-bailey

#andrew-bailey

U.S. financial markets experienced a volatile week, largely influenced by geopolitical developments in the Middle East and fluctuations in energy prices. Investor sentiment was driven primarily by external events rather than domestic fundamentals.

Sterling fell by 0.5% against the dollar, dropping below $1.33, as the US currency strengthened due to a flight to safety. The dollar index increased by 0.3%.

Markets remain fragile amid persistent geopolitical tensions in the Middle East, which have pushed oil prices higher and revived concerns about inflation in Europe. While interest rates are expected to remain unchanged, attention could turn to the ECB's forward guidance and assessment of energy-driven price risks.

Sanjay Raja, the chief UK economist at Deutsche Bank, stated, 'The UK's disinflation story is set for another twist. The good news is that the CPI is expected to fall in the coming months. The bad news? Higher energy prices appear likely to significantly raise the CPI during the summer, creating yet another spike in the inflation trajectory.'

The resilience of gold above $4,800 per ounce at this stage reflects a delicate and complex balance between traditional supporting factors and emerging pressures-one that cannot be superficially interpreted or reduced to the movement of the dollar alone. It is true that the U.S. dollar's retreat from its recent peaks, after failing to sustain its recovery momentum from a four-year low, provided gold with a short-term breather and attracted some buyers.

Stubborn inflation, consistently constrained access to finance, and a recent Budget that hasn't quelled concerns about rising rates, taxation and employee costs are encouraging more SMEs than ever to reassess how they manage their cash reserves and get the most from them. In the 12 months to 30 November 2025, total cash directly deposited by UK SMEs onto Flagstone, the UK's largest savings platform, increased by 77%, from £1.6 billion to £2.9 billion.

With 2-year gilt yields hitting December highs due to a 40 per cent surge in UK gas prices and oil nearing $80, the Bank of England faces a significant inflationary shock. High-street banks are no longer competing on price but are instead protecting margins against rising swap rates.