11 August 2025

GBP

Sterling edged higher last week following the Bank of England’s (BoE) decision to cut interest rates to 4.00% - the lowest level in over two years. The move was finely balanced, with five Monetary Policy Committee members voting in favour and four against, underscoring the complexity of the current economic backdrop.

While the cut offers some relief to borrowers, the central bank was clear: any future reductions will be gradual. It also hinted at slowing its bond-selling programme, responding to signs of stress in long-term gilts. This cautious tone reflects the BoE’s ongoing struggle to balance inflation control with economic support.

This week’s UK jobs data, due Tuesday, is expected to show wage growth easing, average earnings are forecast to fall to 4.7% from 5.0%, while unemployment is likely to hold steady at 4.7%. These figures could give the Bank more room to manoeuvre if the labour market continues to cool.

On Thursday, Q2 GDP figures are expected to show a sharp slowdown in growth to just 0.1%, down from 0.7% in Q1. Output fell in both April and May, weighed down by new tariffs and taxes. For now, sterling’s direction remains tethered to broader macro sentiment, with future BoE guidance likely to be the key driver in the short term.

EUR

The euro enters the week on stable footing, supported by expectations that the European Central Bank (ECB) will hold rates steady until December. According to a Bloomberg survey, policymakers are likely to deliver one final cut this year before pausing, keeping rates at 1.75% through most of 2026 unless demand picks up significantly.

This delay gives the ECB breathing room to assess the impact of global trade tensions, particularly those linked to the US. With the eurozone economy still navigating a fragile recovery, the ECB’s cautious stance is aimed at preserving stability without prematurely tightening or loosening policy.

Tuesday’s release of Germany’s ZEW Economic Sentiment Index will be a key data point. Expectations are for a decline from 52.7 to 39.7, reflecting growing concerns about the economic outlook. While not a market mover on its own, the ZEW reading could reinforce the ECB’s wait-and-see approach and influence short-term euro sentiment.

USD

The dollar faces a pivotal week, with fresh inflation data and political developments converging to test market confidence. Bloomberg Economics expects July’s CPI inflation data to show a 0.3% monthly rise, pushing the annual rate up to 2.8%. This uptick is largely driven by base effects and higher prices in sectors like used cars, hotels, and flights.

Retail sales data due Friday is forecast to show a 0.5% increase, buoyed by strong car sales and online shopping events.

However, political risk is creeping back into the picture. President Trump has announced plans to meet with Russian President Vladimir Putin, a move that could stir global markets depending on the tone and outcome. While such summits don’t always materialise, the mere prospect adds a layer of uncertainty.

Rounding out the week, preliminary consumer sentiment and inflation expectations from the University of Michigan will offer further insight into how households are responding to price pressures and political noise. With fragilities in the labour market already surfacing, the dollar remains highly sensitive to both data and headlines.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.