020 7898 0500
Burnham's destabilising manoeuvres seem to have been thwarted (R Heilig / Shutterstcok)
The pound went into the weekend with a bit more spring in its step after a run of UK data nudged interest rate cuts further into 2026. Two potential threats to sterling’s stability have also been neutralised for now: Greenland and Andy Burnham.
The purchasing managers’ index (PMI) for UK services was, at 54.3, its best for close to two years and far ahead of market expectations. UK manufacturing was also being viewed optimistically for the first time since September 2024.
The official retail sales numbers also showed a solid December rebound. This resilience – following last week’s bounce in inflation – has forced a reassessment of just how quickly the Bank of England can justify cutting rates, and sterling strengthened as a result.
The UK wasn’t an outlier, however, as Germany’s PMI also improved and the eurozone’s as a whole stayed more or less level. Price pressures in services were a theme, with German wage changes flagged as a key driver in the survey commentary, complicating the ECB’s path to easing. For all the hoopla about US economic growth, their PMI flatlined at a level below the UK’s
Currency investors are seeking out the economies least likely to cut interest rates. Last week of GBP, EUR and USD, that was the pound. But all three made some chunky losses to the Scandinavian and antipodean currencies.
For the dollar, the data is still “foggy”, with key inflation and jobs numbers still distorted by the recent government shutdown and clouding Wednesday’s interest rate decision from the Federal Reserve. Most expect no change in rates, but it could still go either way – a cut or no cut. Volatility appears to be the only guarantee.
Also notable for the pound, a ruthless Keir Starmer denied a potential rival from the left the chance to unseat him, as a Labour Party committee prevented Andy Burnham from contesting a parliamentary by-election. This should, in theory, support sterling through a difficult election season in the spring.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: Activity gauges surprise on the upside
The pound finished last week firmer, helped by signs from PMI that the UK economy may have carried more momentum into the new year than markets had assumed. GBP/EUR swung 1% over the week but ended up where it started, while GBP/USD gained 2% and held it. Coming up this week… not a great deal from the UK side of things – just shop price inflation on Tuesday.
GBP/USD past year
EUR: Greenland ‘deal’ boosts euro
The euro gained more than 3% against the dollar last week, surging on Friday evening as the Trump/Greenland mood turned more doveish. The latest eurozone PMI snapshot continued to signal expansion, with services doing most of the heavy lifting while manufacturing only edged forward. Crucially, the commentary flagged higher selling-price inflation driven by German wage changes – the sort of detail to worry the ECB. Coming up today the Ifo Business Climate reading.
GBP/EUR past year
USD: Fed week looms
The dollar declined in a series of steps over last week, overall ending up 2.3% down on the euro, 2% down on sterling and considerably worse against the commodity backed currencies such as AUD and NOK. This week is all about the US Federal Reserve’s decision on Wednesday. The gloves are off in the fight with President Trump, who wants interest rate cuts now, and no cut is expected.
USD/GBP past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 3918 7255 or your Private Client account manager on 020 7898 0541.
