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The Bank of England is expected to cut interest rates to 4.5% at its meeting today.
Sterling enters a pivotal Thursday having strung together several positive days in a row. Yesterday, GBP/EUR hovered near its highest in 2025 and GBP/USD climbed by almost half a cent to end the day at its strongest in almost a month.
Today’s Bank of England interest rate decision stands between the pound and a good week’s work. Markets seem to have priced in a quarter-point (0.25%) cut to interest rates but any surprise on that front, or indeed as to the Bank’s future direction, could send the pound down.
A stock market-led improvement in risk appetite helped European currencies regain some territory over the US dollar. The chaos that dominated the early part of the week has now all but evaporated, while fresh data from the US painted a more mixed picture of its economic strength (more on that below).
European Central Bank (ECB) governing board member Mario Centeno issued a warning on deflation yesterday. Centeno argued that it may need to reduce interest rates below neutral in order to stimulate economic activity. A neutral interest rate in this sense refers to the hypothetical rate that would sustain full employment and stable inflation in the economy.
The eurozone is considering retaliatory measures should the United States impose tariffs on European goods. A so called “bazooka” tool is being readied by lawmakers, which would allow them to place a wide number of financial measures on tech giants like Meta and Google.
The ISM services purchasing manager’s index (PMI) for the US fell from 54 in December to 52.8 in January. That reflects a slower pace of growth in the services sector, with fewer new orders and lower business activity than the month prior.
Donald Trump made waves again yesterday with a vow to “take over” the Gaza strip. His latest comments sparked anger in the Arab world and are likely to increase geopolitical uncertainty and influence currency markets. Whether this new gambit is just a negotiating tactic (see also: Greenland and Panama) or something more substantive remains unclear.
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GBP: Watching minutes and votes
Bank of England members will be in the spotlight today for what is projected to be a near-unanimous (eight to one) vote for a rate cut. Even relatively sure decisions can lead to currency volatility, however, and the margin of the vote could boost or puncture the pound.
GBP/USD: the past year
EUR: Finding its footing
The euro has recovered well since Monday’s shock, stemming the tide against the pound and rebuilding some buffer against the US dollar. In a heartening sign of eurozone resilience, EUR/USD is now above where it began the week.
GBP/EUR: the past year
USD: Not all its own way
Unlike the US president, the US dollar cannot simply bludgeon markets into submission – not yet, at least. A slowdown in services data added more uncertainty for the US dollar, which must now also navigate employment and consumer sentiment datapoints on Friday.
EUR/USD: the past year
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