Sterling strengthened last week as UK inflation data came in firmer than markets had expected, helping the pound hold its ground against the euro. However, with central bank decisions, political uncertainty and geopolitical risks all converging, currency markets remain highly sensitive to new information. For anyone planning an international transfer, this environment highlights why exchange rates can move quickly, and why having a clear strategy matters.
Latest market insights:
Pound to euro strengthened by 0.47% over the past week, meaning that £500,000 now buys €2,675 more euros. The latest UK inflation figures showed price pressures remain persistent. Headline CPI held steady at 3.3%, while services inflation rose to 4.5%, underlining that domestic inflation has yet to cool meaningfully. This has reinforced expectations that the Bank of England will need to keep interest rates higher for longer. Markets are now almost fully priced for no change at this Thursday’s interest rate decision, with an expected 8–1 vote split in favour of holding rates. Higher interest rates tend to support a currency by making it more attractive to investors, and this has helped sterling stabilise despite broader global uncertainty.
By contrast, the outlook for the Eurozone has weakened. Germany, the region’s largest economy, has downgraded its growth forecasts for both 2026 and 2027 while simultaneously raising inflation projections. Rising energy costs, linked to tensions in the Middle East, are a key factor behind this shift. Historically, periods of German economic underperformance have tended to weigh on the euro, and recent data suggests those pressures are re‑emerging. Business activity surveys underline this divergence. Eurozone services and manufacturing both missed expectations and remain in contraction territory, while the same sectors in the UK surprised to the upside, signaling modest but continued growth.
This growing gap in economic momentum has been one of the main reasons sterling has been able to outperform the euro in recent sessions.
Despite recent gains for the pound, risks remain elevated. Disruption in the Strait of Hormuz has significantly reduced oil flows, with only a fraction of the usual number of vessels currently passing through the region.
With up to 25% of global oil supply normally moving through the strait, any further escalation could push energy prices higher and reignite inflation pressures worldwide. This would be particularly challenging for the Eurozone, which is more exposed to energy price shocks than the UK, and could add another layer of volatility to currency markets.
Key data to watch later this week
UK:
Thursday:
- Bank of England (BoE) interest rate decision
Friday:
- Bank of England Pill speech
EUR:
Tuesday:
- European Central Bank (ECB) lending survey
- ECB Lagarde speech
Wednesday:
- Eurozone business climate & consumer confidence data
- Germany CPI for April data
Thursday:
- German Retail sales for March & GDP for Q1 data
- Eurozone GDP for Q1 data
- ECB press conference
USD:
Tuesday:
- Consumer confidence & Employment change data
Wednesday:
- Federal Reserve Bank interest rate decision
- Bank of Canada interest rate decision
Thursday:
- Inflation for March & GDP for Q1 data
Friday:
- Manufacturing PMI data
If you have upcoming currency requirements or would like to discuss how these events could affect your plans, we’re here to help, contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
