By Noam Bennaiche
Sterling faced renewed pressure today as investors adjusted to the diverging expectations between the Bank of England and other major central banks. The Pound weakened against both the Euro and the Dollar. GBP/EUR weakened on Tuesday, following signals that the European Central Bank (ECB) may keep interest rates steady, while GBP/USD drifted lower amid growing anticipation of a interest rate cut from the BoE later this month. Market sentiment towards the Pound remains cautious, with traders awaiting stronger UK data or a shift in global risk appetite.
The Bank of England also lowered its estimate of the capital banks are required to hold, aiming to stimulate lending and boost economic growth. This marks the first reduction in capital requirements since the financial crisis. However, despite a modest rise in the FTSE 100, driven by gains in the banking sector, this did not translate into support for the currency.
Looking ahead, several key UK and global data releases could shape the direction of Sterling this week. On Wednesday, PMI data for the Eurozone and the US will be released, providing insight into economic performance in both regions. If numbers do not meet expectations in Europe, then Sterling might find some temporary relief. On Thursday, the UK’s Construction PMI and European Retail Sales could offer additional clues, while in the US Unemployment Claims are expected to rise slightly to 219K from 216K previously. On Friday, the Halifax House Price Index will provide another perspective on the UK housing market, forecast at 0.2% and previously at 0.6%. In the US, Consumer Sentiment and Preliminary Inflation expectations will be released in the afternoon.
In addition to domestic data, global factors remain key. Eurozone inflation trends and ECB or BoE policy positioning will continue to impact the GBP/EUR pair, while US developments – especially the Federal Reserve’s tone and the strength of the Dollar—will be crucial for GBP/USD.
With Sterling under pressure as the week begins, keep in touch with our team for guidance on your upcoming currency transfers and to stay informed on market developments.
Key data releases this week:
Wed
12.30 ECB Monetary Policy Meeting Accounts
13.15 US ADP Employment Change
15.00 US ISM Non-Manufacturing PMI
Thursday
10:00 Eurozone Retail Sales
13.30 US Unemployment Claims
Friday
08.30 UK Halifax House Price Index
16.00 US Consumer Sentiment
16.00 US Preliminary Inflation Expectations