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Sunshine over the Bank of England
In early trading this morning the pound reached its best against the euro since last summer. It is also at a six-week high against the US dollar, after a day when central bankers and monetary policymakers were in the driving seat.
The background remains oil, with the Bank of England’s Monetary Policy Committee (MPC) voting on interest rates on a day that the oil price hit €126 per barrel – its highest for four years. So although just one of the MPC voted for an interest rate rise yesterday to combat inflation (notably the Bank of England’s senior economist), its governor Andrew Bailey was in no doubt of the danger, saying we are in for “a very big shock”.
Still, it’s all been good news for sterling, on a day when a mass of economic data came out in Europe and the European Central Bank also held interest rates – albeit with theirs at almost half the UK’s, its main rate being 2% to the UK’s 3.75%. Despite that low rate, much of the data coming out of the eurozone was disappointing, with Gross Domestic Product (GDP) for the bloc dipping to 0.1% for the first quarter of 2026, while inflation rose to 3%. All of this was worse than the markets had predicted and a clear sign of stagflation.
The currency winner of the day was the Japanese yen, which gained around 2% on the day against most pairs after Japan’s Finance Minister said authorities were considering taking decisive action.
Few would praise the present British leadership for decisiveness, and next week the local elections are a particularly risky event for Keir Starmer. If his Labour Party do exceptionally badly it could well trigger a leadership challenge – a potential risk for sterling.
Elsewhere, in business news, a report in the Financial Times says that 700 rental homes are hitting the market every month as British landlords sell up. That is a rise of 9% on last year – ahead of the Renters Right Act coming into force. The report says that this is mainly being driven by smaller scale landlords reassessing their investments.
Despite all this, the Nationwide has just revealed UK house prices to be increasing by 3% per year – 0.4% last month – when a sharp fall was expected. It follows a raft of surprisingly upbeat data last week too, in the UK. Is this all just irrational optimism, spring being in the air, or are economists just getting it wrong?
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: Pound at its best since last summer
The pound gained strongly against almost everything but the yen yesterday, including close to a percent on the US dollar, taking it to a 2.25% gain over the course of April. Less spectacular against the euro, and we are still within the zone that GBP/EUR has been trading at for nine months, but its best since last August nonetheless. Although it’s a quiet period for data, next week could be a long one for politics, with Starmer’s premiership again under pressure.
GBP/USD past year
EUR: ECB holds as bad data stacks up
It wasn’t so bad for the single currency yesterday, with gains on the US dollar if not the pound. But the economic headwinds are severe for the euro with rising inflation and sluggish economic growth at best. Eurozone inflation is now at 3% and growth flatlining. The data dries up next week, so it will be all about the Straits of Hormuz once again.
GBP/EUR past year
USD: All downhill for dollar
Geopolitics was at the forefront of the dollar’s decline yesterday, as it fell by nothing less than 0.5% against most currencies and a stonking 2.6% against the yen. Data coming out yesterday – and there was a lot of it – was mixed, but the fact is that GDP is rising by twice the European level while personal income also bettered market predictions.
USD/GBP past year
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