Last week was relatively steady for Sterling exchange rates, with the Bank of England’s latest meeting delivering no surprises. As widely expected, the BoE kept rates unchanged at 4.50%, reflecting caution due to inflationary pressures that are expected to intensify through spring and summer. Upcoming increases in National Insurance, which will raise employer labour costs, and a rise in stamp duty are both anticipated to add further upward pressure to inflation, suggesting the Bank won’t be rushing to ease policy anytime soon.
This week promises more volatility, starting on Monday with Flash PMI data from Europe, the UK, and the U.S. Although these figures are preliminary, they provide a useful snapshot of economic health heading into April. Both UK and EU PMIs are expected to remain relatively robust, while the U.S. numbers might show slight weakness. Additionally, BoE Governor Andrew Bailey will speak later in the day, though markets anticipate he’ll largely reiterate the cautious stance outlined in last week’s policy meeting. Overnight, we also have the Bank of Japan meeting minutes, giving us insight into when the BoJ may next increase rates—potentially influencing JPY volatility.
The most important day of the week, particularly for the Pound, will be Wednesday. UK inflation data will be released early in the morning, with a slight year-on-year decrease of 0.1% expected. However, markets are unlikely to react strongly, given inflation is predicted to rise again in the coming months.
More significantly, attention will shift to Chancellor Rachel Reeves and the UK Spring Budget. Reeves faces a challenging task, described by analysts as a critical moment for her tenure. She must carefully balance constrained public finances with the need to support households and businesses amid ongoing economic difficulties. To achieve fiscal targets, Reeves is expected to announce approximately £19bn in annual spending cuts—a move potentially at odds with her previous commitment to avoid austerity.
The Office for Budget Responsibility (OBR) is widely expected to downgrade its economic forecasts, highlighting persistent inflation and sluggish growth. Market reaction will hinge heavily on Reeves’s ability to demonstrate fiscal discipline without damaging growth prospects. Sterling volatility is likely; more aggressive fiscal tightening could support the Pound by boosting market confidence in the UK’s finances, while a lack of clarity or insufficient action could place downward pressure on GBP.
On Thursday, U.S. GDP data will be closely watched, with growth anticipated to slow to 2.3%. Any disappointment here could trigger notable Dollar weakness. ECB President Christine Lagarde will also speak, though markets don’t expect significant new guidance.
Finally, Friday will bring further crucial UK data, including trade balance, GDP, and retail sales figures. GDP is expected to show improvement, potentially providing support for Sterling, although retail sales may disappoint due to poor recent weather.
Overall, it’s a week that could deliver plenty of currency volatility. If you have upcoming currency transactions or wish to discuss market strategy, please feel free to reach out.