Can the BoE tame inflation without stalling growth? Sterling Update

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP

Sterling enters a data-heavy week with inflation firmly in focus. Wednesday’s UK CPI release is forecast at 3.7%, up from 3.6% in June. Inflation has been edging higher since April, and a higher-than-expected reading could add weight to any expectations that the Bank of England could hold rates at 4.00% for longer.

Thursday’s Service and Manufacturing PMI data, which are both expected to have increased marginally since last month, will help assess the broader economic backdrop, while Governor Andrew Bailey’s appearance at Jackson Hole may offer clues on the BoE’s forward guidance. With the UK economy showing signs of fragility, the BoE remains in a delicate balancing act between inflation control and growth support.

EUR

The euro continues to navigate a cautious recovery, supported by signs of stabilisation in the eurozone economy. July’s Manufacturing PMI rose to 49.8, still below the 50.0 expansion threshold, but the slowest pace of contraction since July 2022. This week’s Services PMI and composite data, due Thursday, will provide a broader view of economic momentum.

European Central Bank President Christine Lagarde’s speech at Jackson Hole this weekend could also influence rate expectations. Markets currently expect the ECB to hold rates at 1.75% until December, with one final cut likely before the end of the year.

USD

The dollar remains highly sensitive to interest rate expectations, and this week’s calendar is packed with potential catalysts. Wednesday’s FOMC meeting minutes and Friday’s speech from Fed Chair Powell will be pivotal in shaping market sentiment.

The Fed has held rates steady at 4.25–4.50% since January, following 75bps of cuts in late 2024. But with political pressure mounting ahead of the 2026 Fed Chair transition, markets are now pricing in a 25bps cut in September and up to 100bps of easing over the next year.

Thursday’s PMI data will offer a timely snapshot of business sentiment and economic resilience. If the data holds up and Fed commentary leans hawkish, the dollar could find support. Conversely, dovish signals may weigh on the greenback.

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