07/03/2026 by Tony Redondo
Currency Exchange Rates Update
In February, the Pound managed to rise against only 8% of the 50+ most traded currencies around the globe. The markets had priced in an 86% of a March interest rate cut by the BoE (Bank of England) with the expectation of another 2-3 cuts in 2026 together with weak domestic economic data. All this weighed on the Pound.
Then last Saturday, the US and Israel launched military action against Iran. For the currency markets, it led to a tumultuous first week of March and the Pound gained over 1.1% in value against the Euro to finish the week at a four-week high. It’s the Pound’s biggest weekly gain against the Euro since April 2025.
The Pound’s gains come on the back of a growing belief in currency markets that the BoE will cut interest rates only once more in 2026, with some economists warning there may be no cuts at all.
Brent crude oil prices have climbed over 24% this week, hitting $93 a barrel for the first time since August 2024, while UK (NBP) natural gas prices have surged over 80% in the same period, threatening to trigger a global inflationary pulse to which the UK, as an energy importer, may be particularly exposed. Although the UK economy is in desperate need of a stimulus from an interest rate cut, the BoE recognises that cutting rates now would risk igniting a snowball effect of rising inflation across the economy.
https://www.express.co.uk/life-style/cars/2177049/aa-fuel-station-petrol-diesel-prices-costs
For the time being, the prospect of a widening interest rate differential between the UK and the Eurozone is Pound supportive. However, if military action in the Middle East continues to escalate, it could drag the UK from its current anaemic rate of economic growth into outright recession, which would ultimately weigh on the Pound-Euro exchange rate.
The ECB (European Central Bank) had previously stated that its monetary policy was in a “good place.” However, with WTI crude oil reaching its highest level since 2023 and the settlement for Dutch TTF Natural Gas Futures nearly doubling in a week, the ECB may soon come under pressure to increase its interest rates to suppress any inflationary surge in the eurozone, especially if these shocks prove lasting.
The Pound ended the week down 0.52% against the US Dollar but hit its lowest level on Tuesday since December 2025 as the Iran war triggered a broad risk-off sentiment, driving capital into safe-haven assets such as the US dollar, Japanese yen, and Swiss franc and into gold with the US dollar emerging as the clearest macro winner after logging its strongest two day rally in nearly a year, outpacing even gold and Treasuries as investors search for liquidity, safety and relative economic insulation. The US’s position as a net energy exporter gives it a terms of trade advantage that the UK, Europe and Asia lack.
In the coming week, the key economic data releases and significant events include:
Monday China CPI & PPI Inflation
Germany Industrial Production & Manufacturing Orders
Tuesday China Trade Balance
Wednesday Germany CPI Inflation
US CPI Inflation
Thursday US Trade Balance
Friday UK GDP & Industrial Production
France CPI Inflation
US GDP, Durable Goods & Consumer Sentiment
What’s in the news?
UK
Chancellor Rachel Reeves delivered her second Spring Statement, admitting that economic growth will slow this year while unemployment will peak.
The OBR (Office for Budget Responsibility) warned that the UK faces a “very significant” risk to the economy from the escalating conflict in Iran that could dent its forecasts, as energy prices and government borrowing costs rise significantly. The cost of short-term government borrowing leapt at its steepest pace since October 2024.
The OBR said:
• Economic growth is forecast to slow from 1.4% to 1.1% in 2026
• It predicts growth (GDP) of 1.6% in 2027 and 2028 and 1.5% in 2029 and 2030.
• Real disposable incomes, a measure of living standards are forecast to grow by less than 0.25% in 2025-26.
• The unemployment rate is expected to peak later this year at 5.3%, equivalent to 1.9 million people. It is then forecast to fall in every year for the rest of the decade, ending at 4.1% by 2029.
• Government borrowing is forecast to be £18bn lower than forecast last autumn with public sector net borrowing of 4.3% in 2025-26.
• Britain’s record tax burden is to rise even further and faster than previously forecast with the Government raking in the equivalent of 38.5% of GDP in taxes at the start of the next decade.
• Government debt is forecast to rise above £3.5tn in 2030, up from £2.9tn now.
• This year the Treasury will pay £109.7bn in debt interest. By 2030-31, the annual bill will hit £137.1bn.
• Inflation is forecast to fall from 3.4% in 2025 to 2.3% in 2026. Its predictions hinge on falling energy prices.
• Benefits spending will increase by £18bn or 5.8% in 2025-26 to a total of £333bn. For context, that is more than the entire economic output of many countries including Romania (£275bn), Portugal (£230bn), Greece (£190bn), New Zealand (£185bn) and Hungary (£165bn) with 53% of the UK population now taking more out of the system than they pay in. It is then forecast to climb by an average of £15bn a year to £407bn by 2030-31.
Julian Jessop, an economics fellow at the IEA (Institute of Economic Affairs) commented that “there is little sign that the government’s economic plan is working. In particular, the OBR’s forecasts for growth have been revised down, and those for unemployment have been revised up. Inflation is at least projected to fall a little more quickly, but this forecast has already been overtaken by the surge in energy prices following the escalation of the crisis in the Middle East. The jumps in the cost of oil and natural gas could also mean that interest rates do not fall as much as hoped, leading to a renewed increase in the cost of government borrowing. More positively, the updated OBR forecasts show a small improvement in “fiscal headroom” since the November Budget. On paper, this means the government is still on course to hit its fiscal targets. But the margin for error is still wafer-thin, and it may not take much more bad news to force the Chancellor to come back with even more tax increases in the Autumn.”
This week marks the 80th anniversary of Winston Churchill’s ‘Iron Curtain’ speech, a defining moment and a call for unity between the US and the UK in response to the growing influence of the Soviet Union and the spread of Communism in post WW2 Europe.
Good news
The S&P Global PMI (Purchasing Managers’ Index) survey shows UK manufacturing activity has hit its highest level in 17 months in February, driven by a surge in strong overseas orders with manufacturing output increasing for the fifth consecutive month, marking a significant trend, with the rate of expansion reaching its fastest since September 2024. The demand for UK-manufactured goods is reported to be increasing across several key regions, specifically in China, Germany, the wider European Union, the United States, and parts of the Middle East. This diversified demand is crucial for the UK manufacturing sector’s recovery, with large manufacturing firms at the forefront of this upswing, benefiting greatly from stronger order books. Medium-sized manufacturers have also experienced positive effects from the increased demand, although the recovery has not been universal across the sector.
The UK’s first geothermal power plant has been turned on in Cornwall. It uses underground geothermal energy to create renewable electricity. The £50m United Downs plant near Redruth was switched on the 26th of February after nearly two decades of development. Energy provider Octopus Energy has purchased the power generated there and will deliver it, via the national grid, to 10,000 homes.
The naturally heated water, exceeding 190 degrees Celsius, generates electricity 24 hours a day seven days a week, regardless of the weather. In addition, the water brought to the surface after drilling contains one of the highest concentrations of lithium in the world, providing the UK’s first domestic supply of lithium, a critical mineral used in green technology.
Not so good news
The latest IoD (Institute of Directors) survey shows business confidence in the UK has nosedived. Over 500 respondents cited the sluggish economy, high employment taxes, and heavy regulation as major concerns.
Lombard Odier, a leading private bank, which manages money for the ultra-wealthy has warned the Government that high taxes and red tape are making Britain an “excruciating” place to invest and is driving entrepreneurs overseas. The 230-year-old bank said the Chancellor’s tax raid on employers’ National Insurance contributions, combined with the Employment Rights Act and changes to business rates, had led many of its customers to conclude that the Government is “anti-business rather than pro-growth”.
The construction sector was hit by weakness in orders, a lack of new starts on projects and “exceptionally wet weather” in February that caused delays and led to a further decline in output according to the latest S&P Global Construction PMI. The survey also shows that total new business has fallen for 13 consecutive months though there were some reported improvements in infrastructure and energy sector work.
The Financial Times’ chief economics commentator says the UK’s high electricity prices are hurting its economy, and renewable energy may be part of the problem. In the early 2000s, British energy was among Europe’s cheapest; now only Germany has higher prices. Gas price volatility is a factor, but that affects all Europe. Britain is especially vulnerable because it relies on gas to smooth intermittent renewable supply. The high costs have driven a decline in manufacturing as well as increased domestic prices. Wind and solar is cheap to run, but expensive to install and production is often wasted because the UK’s grid is outdated and cannot move electricity to where it needs to be.
Economists at the Resolution Foundation, the left-leaning Westminster think tank that is closely linked to Labour ministers, have warned that living standards will be ‘far bleaker’ after 2026 despite Chancellor Rachel Reeves’ claims, even if the conflict in the Middle East does not continue for weeks on end. In response to updated forecasts by the OBR, the think tank estimates that the income of an average working-age family would fall by 0.5% between 2026 and 2029. This equates to a £150 drop in income based on the OBR’s projections of wage growth over the next three years, which are set to grow by around 1.4% over the next three years in real terms.
USA
More mixed economic data out of the US economy. The ADP report came in above consensus figures, with 63K jobs added in the private sector and the ISM services report also surprised to the upside with the headline in at 56.1 (53.5 est.) from 53.8 in January, the highest reading since the summer of 2022. This underscores strong activity and momentum in the services space and suggests the AI driven economy remains rampant despite ongoing concerns about the sector.
The US Producer Price Index rose 0.5% versus the expected 0.3% in January and while that may not sound dramatic, it further supports the narrative of inflation in the US economy.
Nonfarm payrolls fell by 92,000 in February, a sharp contrast from the downwardly revised January gain of 126,000 and far below the growth of 55,000 that economists polled by Dow Jones expected for the month. The unemployment rate also rose from 4.3% to 4.4% as doubts persist over the strength of the labour market.
Scott Bessent, the US Treasury Secretary said the US will likely implement a 15% global tariff next week adding that US levies would soon return to the levels they reached before the Supreme Court recently cancelled last year’s “Liberation Day” duties.
The US and Venezuela agreed to reestablish official diplomatic ties, a landmark moment in the wake of Washington’s ouster of Nicolás Maduro. The announcement followed a raft of visits by top US officials, most recently the interior secretary, and a series of moves by Washington to normalize its economic relations with Caracas.
The EU
Eurozone Q4 2025 GDP was revised down to 0.2% QoQ, reinforcing the region’s fragile growth outlook.
The EU unveiled a series of measures on Wednesday to kickstart its sluggish manufacturing and reduce reliance on cheap Chinese imports. Brussels’ “Made in Europe” push targets the strategic sectors of clean tech, auto manufacturing, and energy-intensive industries like aluminium and steel.
After the Russian invasion of the Ukraine in February 2022, the EU switched from Russia to Qatar for its natural gas requirements and until this week, Qatar supplied 15% of the EU’s LNG (Liquid Natural Gas). Normally, 20% of the world’s LNG passes through the Straits of Hormuz but with this effectively shut to international traffic and EU inventories depleted due to the winter months and standing at 30%, the EU is exposed. LNG prices have experienced a massive surge over the last week, primarily driven by the closure of the world’s largest LNG plant in Qatar following a drone attack and rising tensions in the Strait of Hormuz. Prices have jumped by 50% to 60% across major global benchmarks, marking the most significant price shock since the 2022 energy crisis.
What are the likely economic effects on the EU? Inflation will rise by between 0.3% to 0.5%; household expenditure will reduce in the face of higher energy costs; economic growth will in turn drop by 0.1% to 0.2%, unless of course all those cheerful forecasts of the war finishing in the next 2 weeks are proven wrong.
Others
China’s official manufacturing PMI fell to 49 in February, missing expectations of 49.2 and down from 49.3. New orders weakened to 48.6, and export orders dropped to 45. Non-manufacturing PMI, covering construction and services, slipped to 49.5, also below forecasts. Any PMI figure below 50 denotes contraction.
A record 26% of listed Chinese firms are expected to report a net loss for 2025, as a prolonged real estate downturn dragged down consumption. Private consumption as a share of GDP in China remains below 40%, compared to 50-70% for G7 nations. Meanwhile, excessive competition, for example, China has more than 100 EV manufacturers has stoked fears of deflation, with experts forecasting the spiral will deepen in 2026.
China’s most important economic event of the year opened on Wednesday and decided to cut its growth target, closing a decades-long chapter of breakneck expansion, but maintained a focus on high-tech advancement, defence modernization, and economic self-reliance. The new aim of between 4.5% and 5% this year is the lowest on record, with the country’s premier saying that “while acknowledging our achievements, we are also keenly aware of the difficulties and challenges we face.”
China accounted for 90% of Iran’s oil exports in 2025. Oil prices surged over 35% with WTI moving above $91/bbl. and Brent approaching $93/bbl. Japan imports 75% of its oil through the Straits of Hormuz; South Korea 65%, India 50%, and China 48%.
China is investing heavily in Alzheimer’s research as its population ages. Almost 30% of all patients with dementia worldwide are in China, about 17 million people, and the burden on its health care and welfare systems is projected to dramatically increase with Alzheimer cases forecast to hit 66 million by 2050. The government has boosted efforts to find biomarkers to identify the disease and potential treatments, and although investment levels are behind those in the US, the research is accelerating.
RBA (Reserve Bank of Australia) Governor Michele Bullock struck a firmer tone last week, warning that demand in the economy is running hotter than supply and that labour markets remain tight. She added that it’s unclear whether current financial conditions are restrictive enough to bring inflation back to target on time. The question is, will the RBA wait until May to act, or move sooner as oil-driven price pressures risk pushing inflation higher
The Riksbank, Sweden’s central bank has urged the public to horde a week’s worth of cash in case of disruption to the electronic payment services, saying the current international situation and Sweden’s high degree of digitalisation may lead to vulnerabilities in the payments system. Alongside cash, they also recommend consumers should also hold both Visa and Mastercard cards in case of disruption to one or other network.
The price of gold peaked last week at $5,374 per oz before closing the week at $5,181/oz, while silver finished the week 3% up at just above $84/oz.
https://bmmagazine.co.uk/in-business/gold-price-5400-trump-iran-strikes-6000-forecast
Stranger than fiction
A YouGov survey revealed that 40% of Britons haven’t read a book in the past year. The median is three. I am a ‘bookworm’ so am completely biased on this, but I do think that a society that stops reading loses the capacity for judgement and for sustained thought. A country that doesn’t read, doesn’t think. It doesn’t know what it inherited, or why it matters. The rest follows.
Quote
Edmund Burke, Anglo-Irish writer, philosopher, and politician, “Those who don’t know history are doomed to repeat it.”
