Featured in the August 2026 edition of Business Moneyfacts Magazine.
We are delighted that our latest economic commentary has been featured in the August 2026 edition of Business Moneyfacts, one of the UK’s leading publications covering business banking, commercial finance and treasury.
In this article, Oscar Hurley, Economist at FXD Capital, examines how geopolitical tensions, rising commodity prices and changing central bank communication are reshaping the outlook for inflation and interest rates, and what this means for businesses managing surplus cash in an increasingly uncertain economic environment.
The Changing Outlook for Monetary Policy, Interest Rates and Inflation in Light of Rising Commodity Prices from the US/Israel-Iran War
By Oscar Hurley
Economist | FXD Capital
The US/Israel-Iran conflict has led to significant uncertainty in financial markets since the end of February, with unprecedented volatility in global oil prices. Iran’s effective closure of the Strait of Hormuz, through which around a fifth of the world’s oil supply passes, sent Brent crude above $120 per barrel, pushing energy prices higher across major economies.
At the time of writing, Brent crude has been climbing back towards $80 from lows of $71 after President Trump announced an end to a fragile 60-day ceasefire agreement, highlighting the delicate and rapidly evolving nature of the geopolitical situation.
Outside of the conflict itself, attention has also turned to how central banks are managing the resulting second-round inflationary pressures. The year began with markets pricing in further monetary easing from the Bank of England, European Central Bank and Federal Reserve. However, the conflict has since shifted expectations towards a more hawkish stance on monetary policy.
The UK and US entered the crisis with interest rates already at elevated levels, prompting policymakers to keep rates on hold. By contrast, the European Central Bank began with rates closer to neutral and inflation having returned to its 2% target, leading policymakers to implement a further 25 basis point increase.
Beyond this, central banks have resisted being overly reactive. Instead, they have adopted a measured “wait-and-see” approach as they balance heightened inflationary uncertainty, evolving geopolitical risks and the wider economic implications before making further policy adjustments.
This approach has been particularly evident under newly appointed Federal Reserve Chair, Kevin Warsh. Warsh has openly criticised forward guidance as a monetary policy tool, arguing that it contributed to policy mistakes during the post-pandemic inflation surge. His position was reflected in his first FOMC statement, which was less than half its usual length, together with his decision not to publish a projected path for future interest rates.
During the ECB Forum on Central Banking in Sintra in late June and early July, Warsh’s position appeared to be echoed by his counterparts in Europe and the UK. Christine Lagarde stated that traditional forward guidance had effectively been replaced by “framework guidance”, allowing markets to understand how the ECB is likely to respond based on incoming economic data rather than predetermined policy commitments.
Andrew Bailey adopted a similarly cautious tone, noting that forward guidance is “much easier to put in place than it is to take away”, whilst stopping short of signalling any near-term interest rate reductions.
CEO Commentary
“As central banks move away from providing clear guidance, uncertainty around the future path of interest rates is likely to remain elevated. For businesses, that reinforces the importance of actively managing surplus cash rather than leaving deposits on default terms. A well-structured liquidity strategy can not only improve returns but also provide the flexibility and resilience needed to navigate an increasingly unpredictable market environment.”
Chris Huddleston
Chief Executive Officer | FXD Capital
The consequence of this shift is that central bank communication is likely to become considerably less predictable. Rather than relying on explicit guidance from policymakers, markets and economists will increasingly interpret economic data to assess how central banks may respond and what this means for the future path of monetary policy.
For policymakers, this approach offers greater flexibility whilst reducing the credibility risks associated with committing to a future policy path that may subsequently need to change.
The impact of the conflict is already becoming evident. June projections from the major central banks suggest inflation is now unlikely to return sustainably to the 2% target for at least another year. At the same time, financial markets are currently pricing in approximately 50 basis points of monetary tightening between now and 2028, reflecting expectations that interest rates are likely to remain higher for longer than previously anticipated.
About the Author
Oscar Hurley is an Intern Economist at FXD Capital. His research focuses on global macroeconomics, monetary policy, inflation and interest rate markets, helping businesses understand how changing economic conditions influence treasury management, liquidity strategy and financial decision-making.
About FXD Capital
FXD Capital provides independent treasury, foreign exchange and cash management solutions to businesses across the UK and internationally.
Working with a panel of highly rated banking partners, FXD Capital helps organisations optimise surplus cash, improve interest returns, diversify counterparty exposure and manage foreign exchange risk whilst maintaining the liquidity required to support day-to-day operations.