By James Caley
This week has been dominated by central bank policy shifts and mixed economic data, with notable implications for sterling against both the US dollar and the euro. The European Central Bank cut rates as expected, while the US dollar came under pressure from softer data. These macroeconomic developments contributed to volatility in the GBP/USD and GBP/EUR exchange rates.
The pound gained approximately 1.5 cents against the US dollar over the course of the week, with GBP/USD reaching its highest level since January 2022. The move was driven primarily by dollar weakness, following a run of disappointing US economic data — including a rise in jobless claims and signs of a slowdown in the services sector. These figures have reinforced expectations that the Federal Reserve may begin cutting interest rates later this year. With no major surprises from the Bank of England and relatively stable UK economic conditions, sterling also benefited from investor flows away from the dollar, helping to push the pair higher.
GBP/EUR traded within a narrow half-cent range for most of the week. The ECB delivered a widely anticipated 25 basis point rate cut, which might typically weigh on the euro. However, this was offset by President Lagarde’s comments suggesting that further cuts may be paused, noting the ECB is nearing the end of its rate-cutting cycle. This forward guidance supported the euro, reversing any immediate downward pressure from the cut itself and pulling GBP/EUR toward the lower end of the week’s range.
Conclusion
Sterling had a mixed performance this week — posting gains against the dollar while softening slightly against the euro. Market attention now turns to today’s US Non-Farm Payrolls and unemployment data, which could move rates sharply if results deviate from expectations.