The pound went into the weekend with a bit more spring in its step as a run of UK data nudged interest rate cuts further into 2026. Two potential threats to sterling’s stability have also been neutralised for now after President Trump TACOed* as usual on Greenland tariffs and Andy Burnham’s political manoeuvres were thwarted.
There was a bounce for the UK’s economic picture on Friday when business leaders surveyed for the purchasing managers Index (PMI) were at their most optimistic for close to two years and far ahead of market expectations.
The official retail sales numbers also showed a solid December rebound. This resilience – following last week’s bounce in inflation – probably means the Bank of England won’t be cutting interest rates in early 2026 and sterling strengthened as a result.
Also notable for the pound, a ruthless Keir Starmer denied a potential rival from the left the chance to challenge him, as a Labour Party committee prevented Manchester mayor Andy Burnham from contesting a parliamentary by-election. This should, in theory, support sterling through a difficult election season in the spring.
But where does that leave sterling right now? Against the US dollar it’s close to its best for nearly five years and 10% above the five-year average. That also goes for those currencies pegged to the dollar too, such as the Emirati dirham. Good news if you’re investing in Dubai.
Against the euro we are back to where we were a month ago, also one of the best rates you’d have got for the past six months.
Will that last? The closest we have to a crystal ball is our Quarterly Forecast, where it’s fair to say the predictions were not optimistic for sterling.
So do consider locking in your rate with a forward contract. Just give your account manager a call on 020 8003 4915.
* Trump Always Chickens Out (TACO)
