Compared to a month ago, sterling is looking good against the euro at 1-1.5% above where it spent most of last year. However, the past week to ten days has seen it drift, as the markets rethought the Burnham bounce and, perhaps more relevantly, war in the Middle East restarted.

Overall, it’s in reasonable shape after a turbulent month. The domestic news last week was genuinely encouraging. Inflation fell further than expected and British consumers spent at nearly three times the pace forecasters had predicted.

Friday also brought us the Purchasing Managers Index (PMI), a global reading of business mood. The readings for the service industries were particularly optimistic, with the UK, eurozone and USA all showing a marked increase in optimism and a reversal from last month’s pessimism.

The glitch is that it may have been based on old news. The conditions that led to lower inflation and higher business hopes disappeared last week as the oil price briefly crossed $100, with the Strait of Hormuz closed to normal traffic and the Houthis threatening the Red Sea route too. The Bank of England will be watching that detail very carefully when it meets on Thursday.

The European Central Bank held rates at 2.25% last week, as expected, but president Christine Lagarde let slip that some of her colleagues had pushed for a hike. September is clearly still on the table. For now, the interest rate gap between the Bank of England at 3.75% and the ECB at 2.25% remains firmly in sterling’s favour – which is the main reason the pound has been so strong against the euro this month.

This week, the US Federal Reserve announces on Wednesday evening and the Bank of England (BoE) on Thursday lunchtime. The markets are still betting against a hike, but that’s far from guaranteed. Two members of the BoE’s rate-setting committee already voted to raise rates in June.

This would probably be good for sterling, but the big question this week is whether the oil story gets better or worse. A diplomatic signal from Tehran or Washington could send prices tumbling and give central banks room to breathe. Another escalation could push prices back above $100 and force the Bank of England’s hand. Either way, the pound is unlikely to stand still.

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