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The Bank of England meet on Thursday after sterling lost more ground to its rivals.
Sterling lost a little more ground to both the euro and the US dollar ahead of today’s interest rate decision from the Bank of England (BoE). A “risk-off” tone continued to dominate trading as currency markets look to central banks and developments in the Middle East for direction.
Last night, the Federal Reserve voted to keep interest rates unchanged. That decision may have angered the White House, but it was far from a surprise considering the significant uncertainties facing the American economy. In fact, policymakers are now split over whether they will be able to cut interest rates at all this year.
May’s UK inflation figures (3.4% headline CPI, down marginally from 3.5% in April) make it hard to predict a rate cut from the Bank of England later today. Traders are now expecting just two more quarter-point cuts before the end of the year, with the next coming in September.
At least housing isn’t proving an inflation accelerant. UK house prices fell at their fastest pace in four years in April after the temporary stamp duty freeze ended. The average price of a home fell by 2.8% month-on-month, the highest monthly decline since July 2021, according to Office for National Statistics (ONS) data.
High-speed rail megaproject HS2 is set to be delayed by an additional two years. Originally announced way back in 2012, the project has been beset by delays and funding pressures, which led former Prime Minister, Rishi Sunak, to scrap the second leg of the planned route.
After threatening further action, US President Donald Trump claimed that Iran’s leader had reached out to him in an apparent effort to end the conflict at the negotiating table. Israel and Iran exchanged missiles again last night, while UK Prime Minister Keir Starmer put the cabinet on alert for the potential of the United States joining the war.
China’s central bank governor, Pan Gongsheng, argued that the era of US dollar dominance would soon shift to a “multi-polar” currency system. Pan’s comments come just one day after the European Central Bank’s Christine Lagarde offered a similar assessment of the euro’s potential to become an ever more significant reserve currency.
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GBP: A quiet summer?
Currency markets think the BoE will leave interest rates unchanged until September. Sterling would benefit from a period of certainty given its recent struggles. Don’t put all your eggs into this basket, though. Currency markets are often simply wrong, and “Black Swan” events could surface at any moment.
GBP/USD: the past year
EUR: Sideline spectator
Without much economic data to analyse, the euro has been happy to play the part of spectator in recent days, benefitting from the spotlight focusing elsewhere. That could change next week upon the release of crucial manufacturing data, but for now no news is good news.
GBP/EUR: the past year
USD: Construction a sign of tariff impact
New housing starts fell to their lowest level in five years in May, as the impact of tariffs continued to weigh on large projects. The US dollar is currently benefiting from safe-haven demand, yet it can add the risk of weakening economic fundamentals to its worry list.
EUR/USD: the past year
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