By James Caley
Sterling ended the week on the back foot, weakening across the board and losing momentum against all the major currencies we track most closely. The move gathered pace on Thursday, when markets appeared to take a dim view of the latest political headlines, including fresh chatter around the Kier Starmer and Peter Mandelson relationship. Whether this genuinely changed the outlook, or simply gave traders a convenient excuse to sell the Pound, is up for debate… but the timing certainly didn’t help.
Against the Euro, Sterling gave up over a cent in a single session, a sharp move for GBP/EUR and one that caught attention. The Bank of England’s interest rate announcement didn’t provide much support, with markets interpreting the overall tone as slightly more cautious on the UK outlook. At the same time, the European Central Bank’s messaging reinforced the view that Eurozone policy is likely to remain restrictive for longer, which helped the Euro hold firm and added pressure to GBP/EUR.
The decline was even more pronounced against the US Dollar, where Sterling fell by almost three cents over the week. The Dollar remained well supported, helped by steady US economic data and a backdrop that continued to favour the safety of the world’s reserve currency. With the UK outlook still being viewed through a “rate cuts could come sooner” lens, GBP/USD struggled to find a foothold.
Away from the major pairs, Sterling also lost ground against the Australian Dollar, New Zealand Dollar and Canadian Dollar over the week. These currencies held up better overall, while the Pound remained sensitive to both domestic headlines and shifting interest-rate expectations.
Looking ahead, the Pound is likely to remain reactive to UK data releases and, crucially, how the Bank of England frames the path for interest rates from here. With politics and central bank messaging both playing an outsized role this week, we will be watching whether Sterling can regain stability, or whether further volatility is still to come. This morning Sterling has recovered some of yesterday’s losses. Friday’s calendar includes a couple of data releases worth watching: Germany’s trade balance, which can influence Euro sentiment (particularly if it points to weaker external demand); and in the US, the preliminary Michigan Consumer Sentiment survey, which is closely watched as a gauge of household confidence and inflation expectations, and can therefore affect the Dollar, particularly into the weekend.