Sterling Showing Strength, Euro Awaits ECB Speech & Dollar Struggles for Recovery


Sterling has faced notable volatility over recent weeks, primarily due to the Bank of England’s decision to maintain interest rates at 5.25% for the sixth consecutive time on May 9th. This decision initially triggered a sharp sell-off, causing GBP/EUR to dip to around 1.1605 and GBP/USD to fall to approximately 1.2450. However, both currency pairs have since rebounded, with Sterling now trading at 1.17 against the Euro and 1.27 against the Dollar, driven largely by dovish signals from the ECB and the Fed.

The Pound’s resilience will be put to the test this week with the release of the UK’s April inflation data, scheduled for Wednesday. The Office for National Statistics (ONS) is expected to report a decline in the annual headline CPI to 2.1% in April from 3.2% in the previous month. Core CPI, which excludes volatile items like food and energy, is projected to soften to 3.7% from 4.2%.

A drop in inflation could heighten expectations for rate cuts by the Bank of England. Investors are speculating that the BoE might begin reducing interest rates starting from the June meeting. This speculation has been bolstered by comments from Deputy Governor Ben Broadbent, who suggested that rate cuts could be likely over the summer, indicating that the current rates may become less restrictive.

Such a scenario could be less favourable for Sterling, as the prospect of the first rate cuts since March 2020 might diminish the currency’s appeal by reducing liquidity inflows into the UK economy. Prior to the inflation data release, market participants will be closely watching BoE Governor Andrew Bailey’s comments on the interest rate outlook taking place at 5pm today.


The Euro found itself stuck in a tight range against most major currencies yesterday, as there was a lack of significant economic data from the Eurozone to guide its movement. This made it hard for the Euro to gain any clear direction.

This week, the main event likely to move the Euro is a speech from ECB President Christine Lagarde on Tuesday. If President Lagarde continues to signal a cautious approach, the Euro could weaken against other currencies.

Markets are already expecting the ECB to start cutting interest rates in June. Any mention of this in her speech could put more pressure on the Euro.


The Dollar is struggling to mount a firm recovery as markets grow increasingly confident that the Federal Reserve will begin lowering interest rates from the September meeting. This sentiment has been bolstered by a decline in the United States Consumer Price Index (CPI) and signs of easing labour market conditions, as indicated by recent Employment and Initial Jobless Claims data.

Despite these economic signals, Fed policymakers remain inclined towards maintaining a restrictive interest rate stance. They argue that a single dip in inflation is not enough to ensure that price pressures will sustainably return to the 2% target.

Looking ahead, investor attention will be focused on the Federal Open Market Committee (FOMC) minutes, scheduled for release on Wednesday. These minutes are anticipated to reveal that policymakers are committed to keeping interest rates higher for a longer period to cement their efforts in controlling inflation.

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