The British pound fell in European trading on Wednesday against a basket of global currencies, extending its losses for the second consecutive day against the US dollar and pulling back from a two-week high, due to corrective moves and profit-taking, under pressure from the strength of the US currency amid investor doubts about a quick resolution to the conflict in the Middle East.

As expectations rise for the Bank of England to raise interest rates in April to address the impact of the Iran war and higher energy prices, markets are awaiting later today the release of key UK inflation data for February to reassess existing expectations for British interest rates.

Price Overview

British pound exchange rate today: the pound fell 0.2% against the dollar to $1.3384, down from the session opening level of $1.3407, after reaching a high of $1.3436.

The pound lost 0.1% against the dollar on Tuesday due to corrective moves and profit-taking, after recording a two-week high of $1.3480 in the previous session.

US dollar

The dollar index rose 0.2% on Wednesday, maintaining gains for the second consecutive session, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, amid strong doubts about the possibility of quickly ending the conflict in the Middle East, and that negotiations to end the Iran war will be complex and require a prolonged period to reach a peace agreement acceptable to all parties.

UK interest rates

The Bank of England kept interest rates unchanged last week for the second consecutive meeting.

All nine members of the Monetary Policy Committee (MPC) voted to hold rates steady, marking a notable shift after some members had previously leaned toward cutting rates.

The bank indicated that the “shock” of the war between the United States, Israel, and Iran has led to a sharp rise in global energy prices, which will increase fuel and utility bills for UK households and businesses.

The bank warned that inflation will rise in the near term (between 3% and 3.5%) due to higher energy prices, after previously showing signs of easing toward the 2% target before the conflict erupted.

Following the meeting, markets increased pricing for the probability of a rate hike by the Bank of England at the April meeting from 0% to 15%.

UK inflation data

To reassess expectations for UK interest rates, investors are awaiting later today the release of key inflation data for February, which is expected to have a significant impact on the Bank of England’s monetary policy path.

At 07:00 GMT, the headline consumer price index is expected to rise 3.0% year-on-year in February, unchanged from the previous reading, while the core CPI is also expected to remain steady at 3.1% year-on-year.

Outlook for the British pound

We expect here at Economies.com that if UK inflation data comes in above market expectations, the probability of a rate hike in April will increase, which would help reduce the current losses in the British pound.

The Australian dollar fell in Asian trading on Wednesday against a basket of global currencies, extending its losses for the fourth consecutive day against its US counterpart and moving lower toward a seven-week low, following the release of key inflation data in Australia.

The data showed an unexpected slowdown in Australian inflation in February, easing inflationary pressures on policymakers at the central bank, which led to a slight decline in expectations for an interest rate hike in May.

Price Overview

Australian dollar exchange rate today: the Australian dollar fell 0.3% against its US counterpart to 0.6970, down from the session opening level of 0.6991, after reaching a high of 0.7004.

The Australian dollar ended Tuesday’s session down 0.2% against the US dollar, marking its third consecutive daily loss, and recorded a seven-week low of 69.11 cents in the previous session.

Inflation in Australia

Data released on Wednesday by the Australian Bureau of Statistics showed that the headline consumer price index rose 3.7% year-on-year in February, below market expectations of a 3.8% increase, after rising 3.8% in January.

Australian inflation below expectations in February

These data indicate a slight slowdown in the pace of Australian inflation, somewhat easing inflationary pressures on policymakers at the Reserve Bank of Australia, as they await further data in the coming period to assess the impact of recently rising global oil prices on consumer prices in Australia.

Australian interest rates

Following the data above, markets reduced pricing for the probability of a 25-basis-point rate hike by the Reserve Bank of Australia in May from 65% to 55%.

To reassess these expectations, investors are awaiting further data on inflation, unemployment, and wages in Australia.

The Reserve Bank of Australia has raised interest rates twice this year to 4.1%, due to the impact of the US-Israel war with Iran on global oil trade and rising fuel prices across the country.

Ethereum is trading near the $2,150 level, as analysts renew debate over whether the cryptocurrency has entered an attractive “buy zone,” amid mixed valuation signals and market behavior.

Attention is currently focused on the market value to realized value (MVRV) ratio, which has fallen below 0.8, a level historically seen as close to market bottoms.

Crypto analyst Ali Martinez said Ethereum may have entered what he described as a “generational buy zone,” noting that similar readings in previous cycles coincided with bottoms followed by strong rallies.

Martinez explained that Ethereum’s recent recovery was not random, citing past periods that saw rebounds ranging between 149% and 587% after bottoms formed in 2018, 2020, and 2022.

Ethereum rose 7% on Monday, briefly reaching $2,186 before easing slightly to trade around $2,152 at the time of writing, maintaining part of its recent gains after rebounding from lower levels.

Ethereum remains below its previous cycle peak, keeping valuation models and recovery signals in focus at this stage.

Expansion in Ethereum holdings

Research reports from Arkham Intelligence indicated that Bitmine, a firm linked to Tom Lee, added $140.74 million worth of Ethereum over the past week, bringing its total holdings to about $10.03 billion.

According to the report, Bitmine controls approximately 3.86% of Ethereum’s circulating supply, with a stated goal of reaching 5%, implying the need for significant additional purchases in the coming period.

The report also noted that the company’s pace of Ethereum accumulation exceeded Strategy’s Bitcoin purchases over the same period, which totaled about $76.6 million this week.

Observers believe that treasury activity is adding a new support factor to the Ethereum market, as investors watch whether continued institutional buying could support prices if overall demand improves.

Weak US demand

On the other hand, CryptoQuant analyst Arab Chain noted that Ethereum’s Coinbase premium index declined to around -0.0149, meaning the price on Coinbase is lower than on other platforms such as Binance, reflecting weaker demand from US buyers.

These data suggest that global trading activity remains stronger than US demand on the platform, and indicate that the recent rebound has not yet been supported by strong spot demand in the US market.

A persistently negative premium typically signals weak buying appetite or selling pressure on Coinbase, which may limit the strength of Ethereum’s recovery in the near term.

If the premium returns to zero or turns positive, this could signal improved buying flows from US investors, potentially providing additional support for prices in the coming period.

Shortly before the outbreak of the war with Iran, I wrote that the apparent calm among government officials and participants in financial markets was based on two assumptions that I viewed as unlikely:

That US President Donald Trump would strike a last-minute deal with the Iranians and declare victory,

And even if he did not reach such a deal, that the Iranians would not carry out everything they had threatened if attacked.

Now, three weeks into the conflict between the United States, Israel, and Iran, there has been no last-minute deal, and the Iranians have indeed carried out what they had warned of. Below is what I had previously noted regarding Iran’s threats:

These threats included attacking US bases in the region, targeting any country assisting the United States and Israel in the war, striking US warships, and most importantly, closing the Strait of Hormuz, through which around 20% of global oil and liquefied natural gas exports pass.

As I pointed out, that calm was likely to turn into panic in many world capitals. That has indeed happened. Governments and populations in Gulf states allied with the United States have come under direct attack from Iran in response to strikes carried out by Israel and the United States. Countries that rely on steady supplies of Gulf oil and gas are also seeking alternative sources and adapting to the sudden shortfall.

Since most other supplies of oil and liquefied natural gas are tied to long-term contracts, countries have turned to Russian oil and gas after US sanctions were lifted. However, Russia’s exports had already been circumventing sanctions, so any increase in supply is likely to be limited.

Despite all this, it remains puzzling that calm still dominates financial markets — except in the oil market. Equity markets have declined, but not collapsed. For example, the S&P 500 has fallen from 6,900 at the start of the war to around 6,500 on Friday, a level it had previously recorded on November 20 last year.

Agricultural commodity markets reflect rising input costs, but we have not yet seen a sharp increase in food prices. Gasoline and diesel prices have risen rapidly, yet the public has been repeatedly reassured that this is temporary.

Here is why I believe this market calm is misplaced:

1. The closure of the Strait of Hormuz and its impact

Iran has closed the Strait of Hormuz to all vessels except its own and those of friendly countries, and shipping traffic has become only a fraction of what it was before the war. The Trump administration did not expect the war to last this long, nor did it anticipate that Iran would close the strait, which explains the absence of a ready plan to keep it open.

The US military has suggested the possibility of taking control of Kharg Island, Iran’s main oil export terminal, to pressure Tehran into allowing shipping to resume. However, the island is not close to the strait, meaning a US presence there would not directly affect navigation, raising the possibility that such statements may be misleading.

The Iranian military has almost certainly planned in advance how to repel any force attempting to seize the island or land along the eastern coast of the strait, an area filled with caves and fortifications. It does not appear that a small force could hold or control such terrain.

So far, there is no indication that a large-scale ground invasion is being considered, an operation that would require months of preparation. If the strait remains closed for several months, it would almost certainly lead to a global recession.

It is also important to note that any attempt to take control of Kharg Island could result in the destruction of the oil terminal. Iran has already responded to attacks by striking energy facilities in Gulf states, and there are strong reasons to believe it would do the same if its oil infrastructure were targeted. Such damage could take years to repair.

Moreover, Iran does not need to control its coastline to threaten shipping, as it has demonstrated the ability to strike targets using drones and missiles from long distances. Even if US forces were to take full control of the coast, that would not eliminate the threat to shipping in the Gulf.

The Houthis in Yemen, allies of Iran, should also not be overlooked. They have previously disrupted shipping in the Red Sea and could open another front at any time, especially given their effective military capabilities.

2. The failure of the quick capitulation assumption

The Trump administration believed that heavy bombardment and targeted assassinations would lead to a rapid Iranian surrender, but that has not materialized. The bombing has continued without triggering regime collapse or internal uprising.

Any investor expecting such an outcome in the near term may have to wait much longer, while markets adjust to shortages in energy, fertilizers, chemicals, and disruptions in supply chains.

3. The illusion of a quick withdrawal

Some market participants believe that Trump could declare victory and withdraw. However, this appears difficult given the strong influence of pro-Israel supporters in the United States, as well as Israeli Prime Minister Benjamin Netanyahu, who is seeking to dismantle Iran’s nuclear program and destroy its missile capabilities.

Even if the United States were to withdraw, it would only fulfill one of Iran’s conditions for peace — the removal of US forces from the Gulf. Other demands, such as lifting sanctions, providing security guarantees, and offering compensation, are unlikely to be accepted.

Conclusion:

The closure of the Strait of Hormuz is already revealing its impact, including rising fuel prices and shortages of some critical supplies. There are also less visible effects, such as shortages of fertilizers and helium used in semiconductor manufacturing.

These pressures will continue as long as the strait remains closed. Even if it is suddenly reopened, returning to previous production levels could take months.

In other words, significant economic damage has already occurred, and its effects are likely to persist for a prolonged period.