Last week, the British pound outperformed, driven by a pivotal Bank of England (BoE) decision. The BoE cut its key interest rate by 0.25% to 4.25%, as widely expected, but surprised markets with a three-way split vote. Two members wanted a larger 50bp cut while two others voted to hold rates steady, a hawkish twist that tempered expectations of immediate follow-up easing. As a result, GBP/USD climbed – briefly nearing a three-year high mid-week – and EUR/GBP slipped, with sterling buoyed by the BoE’s cautious guidance. Officials, citing new U.S. tariffs as a headwind to growth, stressed a “gradual and careful” approach to further rate cuts. This prudent tone, coupled with the unexpected dissent against loosening policy, saw the pound rise about 0.2% against the dollar after the announcement.
This week, Investors will watch UK data to gauge whether the pound’s strength can be sustained. The latest UK employment report (unemployment and wage growth) is due on Tuesday and will offer insight into domestic economic momentum. Attention then turns to Wednesday’s preliminary Q1 GDP reading, expected to show whether the economy managed any growth or remained near stall-speed. Any upside surprise in growth, or continued labor market resilience, could further support GBP. However, soft readings may revive speculation that the BoE could cut rates again later in the year. Beyond data, sterling traders will also remain alert to ongoing trade developments – positive signs in UK-US trade talks or an easing of tariff tensions could add to the pound’s recent tailwinds.
GBPUSD – 1.3280
GBPEUR – 1.1870
Last week, the euro was more subdued, lacking a fresh policy catalyst from the European Central Bank (ECB). Early on, the common currency found modest support from stronger-than-expected German industrial output data. EUR/USD ticked up on general dollar weakness ahead of the Fed meeting, briefly nudging above $1.13. However, the euro’s gains were limited as the dollar rebounded later in the week and as Eurozone fundamentals remain relatively soft. The ECB’s last move in April was a 25bp rate cut, its seventh consecutive cut, bringing the deposit rate down to 2.25%. Policymakers signaled growing concern about weak growth and indicated further easing is on the table if needed. By week’s end the euro was roughly flat to slightly higher against USD, but underperformed GBP.
This week, the focus for the euro shifts to economic data and any guidance from ECB officials before their next meeting in June. On Tuesday, Germany’s ZEW economic sentiment survey for May will be released. Mid-week, Eurostat’s industrial production report for March is due. Inflation will also be watched: final Eurozone CPI data for April (due Friday) should confirm price growth easing, underscoring the ECB’s easing bias. Absent a clear catalyst, the EUR is likely to trade in response to its counterparts.
EURUSD – 1.1188
EURGBP – 0.8425
Last week, the U.S. dollar saw a reversal of fortune over the week. Ahead of the Federal Reserve meeting, the USD softened to near one-week lows. The Fed left interest rates unchanged at 4.25–4.50% as expected, but Chair Jerome Powell’s tone was cautious rather than clearly dovish. The Fed acknowledged cooling inflation and some labor market softening, yet indicated it is not inclined to ease aggressively. A larger-than-forecast drop in U.S. jobless claims added to USD support. Meanwhile, other central banks – the BoJ, RBA, and China’s PBoC – maintained or eased their stances, reinforcing the dollar’s yield appeal.
The focus this week will be U.S. data releases. On Tuesday, the April CPI report is due, and any downside surprise could reignite hopes for Fed rate cuts. Conversely, sticky inflation could extend gains. Thursday brings retail sales for April – strong numbers would support the dollar, while weak data could spark a pullback. Trade headlines and Fed speakers may also influence market direction.
GBPUSD – 1.3280
EURUSD – 1.1188
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*Interbank rates are correct at 7am on the date of publishing.
