Hawkish BoE stance suggests ongoing restrictive measures: Sterling Update

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

GBP

The Bank of England cut interest rates by 25 basis points, aligning with expectations. However, the split vote among MPC members (ranging from no cut to a 50bp cut) reflects uncertainty and supports the BoE’s gradualist approach to further easing.

Despite the cut, the BoE struck a hawkish tone, signalling that policy will remain restrictive to manage inflation risks. This has helped the pound recover slightly against the euro.

The limited UK-US trade deal has also supported GBP, as it reduces uncertainty around transatlantic trade. While the UK didn’t secure major concessions, with the new trade framework agreed by the two countries maintaining a flat 10% tariff, the ongoing dialogue has been welcomed by investors.

There have been relatively lower levels of market volatility since and the pound continue to make further gains against the euro until the EU secures a deal of its own.

Key data to watch this week includes UK GDP on Thursday and labour market figures on Tuesday. The latest growth data is expected to show 0% growth in March, down from 0.5% in February, and the unemployment rate is forecast to increase 0.1% from last month to 4.5%.

EUR

The euro remains under pressure amid expectations of further ECB rate cuts, possibly as early as June. Despite ECB officials’ optimism that inflation will return to the 2% target by year-end, concerns over the economic outlook persist.

The Eurogroup meeting this week and the upcoming EU GDP release (expected at 0.4%) will be in focus this week. Meanwhile, the European Commission has launched a public consultation on potential countermeasures to US tariffs, though the priority remains securing a trade agreement.

USD

The Federal Reserve held interest rates steady at 4.50%, maintaining a hawkish tone despite growing concerns over economic headwinds. Fed Chair Jerome Powell emphasised that while the labour market remains strong and economic activity is expanding, inflation remains sticky, and risks of both higher inflation and unemployment have increased.

Markets were buoyed by breaking news of a US-China trade deal, which includes a 90-day reciprocal tariff reduction of 10%. This has helped ease fears of a recession and global trade war, bring more stability into global markets.

Looking ahead, Fed officials’ speeches throughout the week, including Powell’s speech on Thursday, today’s US Monthly Treasury Statement, and the latest PPI inflation data on Thursday, are expected to influence USD sentiment this week.

Trump’s involvement in both the Russia-Ukraine conflict and trade negotiations also continues to influence global sentiment. President Zelensky is reportedly open to direct talks with Putin in Istanbul this week. While this raises hopes for de-escalation, uncertainty remains high, with Western leaders warning of massive sanctions if Russia fails to agree to a ceasefire.