Britain’s new prime minister, Andy Burnham, has only been in Number 10 for a matter of hours, but he is already getting a sense of the challenges ahead. Sterling fell to its weakest against the euro in a week as more proposed government spending unnerved currency markets.
On balance, the £850mn pledged to cut VAT on winter energy payments – worth about £45 a year to the average household – looks like a drop in the ocean. The pound still fell on Tuesday as investors waited anxiously for concrete signals that the government would not run up against its own fiscal rules in attempting to alleviate the cost of living.
The sterling to euro rate has dipped by close to a cent from last week’s peak, which just goes to show how fast things can move. The safest course of action is always to lock in today’s rate with a forward contract, a move that will provide you with peace of mind, whichever way the markets move.
This morning’s June inflation data showed that prices were at least moving in the right direction. Headline consumer price inflation (CPI) fell by more than expected to 2.6%, the lowest since March 2025, although higher oil and gas prices this month might mean that proves to be a flash in the pan.
Sterling was stable after the data arrived, indicating it hadn’t done much to change the Bank of England’s interest rate outlook. The BoE is widely expected to keep rates on hold until after summer when it meets in eight days’ time, with inflation expected to pick up should the conflict in the Middle East drag on and start affecting fertiliser and food costs.
The bad news is that the diplomatic situation didn’t improve yesterday. Despite attempts to restart negotiations, oil prices jumped back above $90 to the barrel as President Trump threatened the Houthi group, which announced it would blockade Saudi Arabian ports.
If one conflict wasn’t enough, Donald Trump reignited the trade war by imposing a 50% tariff on a host of Canadian goods protected during last year’s wrangling. If you don’t have interest in wine, hockey sticks or fishing rods, this next part will provide plenty to groan about. Yesterday, White House officials suggested they were readying another round of tariffs on several other economies.
GBP: Skittish start
The pound has endured a skittish start to the week, weakening by close to a cent against both the euro and the US dollar since Midday on Monday. Scrutiny of Andy Burnham and his cabinet remains high, with borrowing costs nudging closer to record highs yesterday. The one positive was that the UK government borrowed less than expected last month.GBP/USD: the past year
EUR: Turning to ECB
The euro moved in a narrow range against the US dollar on Tuesday ahead of the European Central Bank’s (ECB) rate decision tomorrow. Markets are widely expecting a hold, but the question that matters for the euro is how aggressively the ECB will look to control prices in the months ahead.GBP/EUR: the past year
USD: Tied to oil
The US dollar has risen in line with the price of oil this week, as investors step up their efforts to seek refuge from the energy crisis. The prospect of those prices remaining higher for longer means the dollar could strengthen further ahead of the Federal Reserve’s decision next week.USD/GBP: the past year
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