May has been largely negative for sterling, with falls of between half a cent against the euro and well over 1% against the US dollar. However, it could have been worse after a mid-month drop that recovered.
The cause of that weakening – the increasing likelihood of a more left-wing government under Andy Burnham – dominated the headlines again after an intervention by ex-PM Tony Blair on where Britain is going wrong. The responses from would-be PMs were largely predictable, but with three weeks until the Makerfield by-election, for the time being the situation in the Straits of Hormuz is the larger factor for sterling.
We saw that overnight on Wednesday, as fresh US and Iranian strikes were exchanged, sending safe-haven demand for the dollar to a brief two-week high.
This morning the markets will be focused on the economic news coming out of Europe. With both inflation, GDP and other data on the way, we can see an instant picture, and for France so far that looks distinctly like stagflation – rising inflation and falling GDP.
Across the Atlantic, the new Federal Reserve chair Kevin Warsh has been sworn in. This fulfils President Trump’s long-stated wish for a replacement for Jerome Powell and, he hopes, lower interest rates. Markets, watching oil and the bond market, are pricing in the opposite, whatever Warsh’s own instincts may be. The Fed remains the most powerful central bank in the world and what happens in Washington could well set the pattern for the Bank of England too.
We are in a quiet period of data for sterling, but the traditional idea that sterling gains in May (and then declines through the summer) doesn’t seem especially evident this year. Unless standing still was strength in itself.
Last year between the end of May and mid-July GBP/EUR lost 5%, putting the plans of many property buyers and others in jeopardy. If that would be a problem for you too, call your account manager and consider hedging against that risk.
GBP: Business as usual for sterling
Business as usual for sterling yesterday, with minor movements governed by data and news from outside the UK’s sphere of influence – mainly the Middle East. That is likely to be the pattern again today, with little data of interest. However, Bank of England governor Andrew Bailey will be speaking shortly, and comments on monetary policy can always influence exchange rates.GBP/USD: the past year
EUR: Inflation and GDP data out today
The euro gained a little on the US dollar yesterday but lost to other safe havens. However, all movements, up or down, were less than a third of a cent and it was unmoved against GBP. We’ve got inflation and GDP data coming out today and early next week, which has potential to put some wind into EUR’s sails one way or another. France’s has already shown a small inflation rise but a more significant shrinking of the economy in the first quarter of 2026.GBP/EUR: the past year
USD: Dollar rethinks overnight gains
Only one direction for the US dollar yesterday – downwards – but this can be viewed as a correction from the two-week high it hit overnight. After yesterday’s largely disappointing set of economic figures we have several Federal Reserve rate-setters speaking this afternoon. Will they change their tune under the fresh leadership of Kevin Warsh? There will be a fresh set of economic – especially labour market – data next week.USD/GBP: the past year
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