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The pound has quietly put together a strong week. Backed by a run of better-than-expected economic releases, sterling has picked up around half a cent against the dollar and held firm against the euro. It’s a welcome shift after a bumpy start to the year.
The numbers have been genuinely encouraging. UK retail sales surged 1.8% in January – far above forecasts – while the latest business surveys showed the fastest rate of private sector growth since April 2024. Manufacturing activity hit an 18-month high. Even the public finances surprised, with the Treasury posting its biggest January surplus since records began in 1993. Against the backdrop of sluggish gross domestic product (GDP) growth at the tail end of 2025, this week’s data suggests the economy may be finding its feet.
The question now is what comes next. The Bank of England’s next interest rate decision lands on 19 March, and Governor Bailey told MPs this week that a cut remains an open question. Services inflation at 4.4% is running above the Bank’s own forecasts, which gives the rate-setters something to think about. Chief economist Huw Pill – who has been more cautious about the pace of cuts – speaks this afternoon at 1pm and could add a hawkish note.
On the other side of the Atlantic, the dollar’s slide has continued. Weak growth figures, sticky inflation and ongoing confusion over the new tariff framework have all weighed on the currency. US durable goods orders and weekly jobless claims are due this afternoon, offering a fresh snapshot of how the American economy is holding up.
Tomorrow brings a busy morning for eurozone watchers, with preliminary February inflation figures from Germany, France and Spain. These will set the tone ahead of the European Central Bank’s (ECB) next meeting, also on 19 March. It’s shaping up to be a pivotal few weeks for all three major currencies.
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GBP: Data does the talking
It’s been a while since the UK economy delivered this many positive surprises in a single week. The purchasing managers’ index (PMI) composite reading of 53.9 points to solid expansion, retail spending is up sharply, and the fiscal picture looks healthier than expected. That’s given the pound a decent platform.
The rate outlook is the next thing to watch. Markets price roughly a 90% chance of a cut to 3.5% on 19 March, but Bailey’s caution over services prices suggests it’s far from a foregone conclusion. Next week’s Spring Statement on 3 March will also matter – updated growth forecasts from the Office for Budget Responsibility could shift the mood quickly.
GBP/USD: the past year
EUR: Factory floor recovery
There’s a quiet turnaround happening in eurozone manufacturing. The flash PMI crossed back into expansion territory for the first time since mid-2022, led by Germany, where factory output grew for the first time in over three-and-a-half years. Business confidence in Europe’s largest economy hit a six-month high too, with export expectations turning positive for the first time since last summer.
Inflation, meanwhile, continues to fall. The final January reading came in at 1.7% – comfortably below the ECB’s 2% target. Tomorrow’s national prints from Germany, France and Spain will be closely watched. If they come in soft again, the debate over whether the ECB should resume cutting rates will only get louder. The EU’s decision to pause ratification of its US trade deal adds another layer of uncertainty for the bloc.
GBP/EUR: the past year
USD: Growth wobble meets tariff confusion
The dollar has lost ground for a second straight session, and the broader trend isn’t hard to explain. US growth slowed sharply to 1.4% in the final quarter of 2025, consumer confidence remains below recession-warning levels for the thirteenth consecutive month, and the tariff picture is, to put it kindly, unsettled. The new 15% import surcharge expires after 150 days unless Congress extends it – hardly the sort of clarity businesses crave.
This afternoon’s durable goods data should give a better sense of investment appetite. Looking ahead, next Friday’s jobs report is the last big release before the Federal Reserve meets on 17–18 March. Rate traders have pushed expectations for the next Fed cut all the way out to September.
EUR/USD: the past year
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