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It was all about the central banks yesterday, even though they sat on their hands. The currency markets were quick to move nonetheless.
Sterling took the harder knock. Since its surge upwards on Wednesday lunchtime it’s slipped by roughly 1.5% against both the euro and the dollar, give or take.
Part of that was the Bank of England holding interest rates as expected, but with a vote to cut rates coming so close – losing by one vote on the nine-member Monetary Policy Committee – which was not expected and points towards a cut next month. The Bank’s growth forecast has been downgraded to 0.9% for 2026, from 1.2%.
The other dent to sterling’s confidence came from politics. Sir Keir Starmer is under pressure for his judgement in choosing Peter Mandelson as ambassador to the USA. The chatter about resignations drags the spotlight back onto UK stability, and investors hate these guessing games.
Over in Frankfurt, the European Central Bank’s steady message helped the euro hold its ground. With inflation at just 1.7% the ECB has the headroom to lower interest rates if growth proves less resilient than they hope.
And in the US, the story is still a mix of politics and data. Kevin Warsh’s nomination as chair of US Federal Reserve has eased some nerves about Fed independence. Today should have been a non-farm payrolls Friday, but that’s been delayed to next week. However, JOLTs job openings did come out yesterday – and were their worst since September 2020. We’ll also get US inflation next week.
In business news, Donald Trump’s policies have been blamed for a 4.2% drop in foreign visitors traveling to the USA, even while overall international travel grew by a similar amount.
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GBP: Politics is in the price again
Sterling didn’t just drift lower this week. It dropped a gear. The BoE’s hold was one thing, but the market is suddenly less willing to assume calm politics and clean decision-making in Westminster. After all the political froth it may be a relief to have data running the show from next Thursday, with GDP.
GBP/USD past year
EUR: Steady ECB, steady euro
The euro has been steadier than sterling, helped by an ECB that looks comfortable holding rates where they are. The key detail is inflation: January’s drop below target strengthens the argument that policy can stay on a long leash, as long as growth doesn’t roll over.
GBP/EUR past year
USD: The dollar waits for proof
The dollar is being pulled in two directions. On one side, a more hawkish-leaning narrative around Fed leadership has been supportive. On the other, the market still wants cold, hard data before it commits either way. Wednesday brings the rescheduled January jobs report, and Friday brings the delayed CPI release. Those two numbers can reset expectations quickly, especially after a week where the calendar has been messy.
USD/GBP past year
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