Some of the froth came off the pound’s recent gains yesterday, but it’s still clinging on to a position close to a six-week high against the euro.
The background to exchange rate movements right now is interest rates and some volatility can be expected. The US Federal Reserve goes today, with a 25-basis point cut widely expected. Any deviation from that is likely to hit the dollar one way or another.
It would be despite a stonking US employment report yesterday as 430,000 new jobs were added, and worrying inflation. Even so, today’s cut looks priced in and the talk now is of whether the cautious Jerome Powell will be replaced as chair of the Fed by a Trump yes-man. Final interviews for the job are this week.
The Bank of England’s governor Andrew Bailey will also be quizzed today, with the BoE’s own quarter-point rate cut expected next week but still far from baked in. There was further evidence of a slow economy yesterday with the British Retail Consortium (BRC) reporting like-for-like sales rising by just 1.2%, the most sluggish rise for six months.
It’s been a quiet few days for data but that all ramps up over the next week, with GDP, unemployment and inflation for the UK all being released in the run up to the BoE’s interest rate decision.
There is also increasing speculation about how a threat to the prime minister will play out on the markets, should the situation in the first half of 2026 and the elections in May not develop necessarily to Starmer’s advantage. According to J P Morgan analysts, a more left-wing replacement such as Angela Rayner or Andy Burnham could have a highly negative impact on sterling.
That’s certainly one thing to watch out for if planning a springtime property purchase or retirement overseas. Why not talk it all through with your account manager on 020 8003 4915, potentially with thoughts on fixing your rate throughout the purchase process, for complete peace of mind.
In the meantime, yesterday 13 Labour MPs voted in support of a Liberal Democrat bill that would require the government to begin negotiations on joining a bespoke customs union with the EU. This is highly unlikely to become law, although it did pass the first stage.
