The pound to euro rate moved within a 0.78% range last week, a difference that could be worth nearly €4,000 on a €500k property purchase. With the Bank of England (BoE) holding rates, the Federal Reserve (Fed) split on cuts, and oil volatility driven by Strait of Hormuz tensions, currency markets remain highly sensitive this week.
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The key driver behind sterling’s relative resilience was the Bank of England’s rate decision on Thursday. The Monetary Policy Committee voted 8:1 to hold rates at 3.75%, with one member dissenting in favour of a 0.25% hike. That dissent matters. It signals that the committee is not unanimously dovish, and markets now expect rates to stay higher for longer, particularly if UK inflation or wage growth remains sticky.
“Markets now expect rates to stay higher for longer, a backdrop that has historically supported sterling.“
This meeting-by-meeting approach from the BoE means there is no pre-commitment to future cuts. For anyone holding sterling or planning a GBP-denominated transfer abroad, this is broadly positive news, but it is conditional on the UK data continuing to hold up.
The eurozone: cracks widening beneath the surface
While sterling has been holding its ground, the euro has faced renewed selling pressure, and for good reason. The eurozone’s economic data last week painted a troubling picture, particularly from Germany, which remains the bloc’s largest and most influential economy.
German retail sales fell sharply year-on-year in March, dropping from 0.9% to -2%. At the same time, unemployment rose by 20,000, a significant move for a country that had previously maintained near-record low joblessness. Growth forecasts for Germany have now been downgraded for both 2026 and 2027, and there are growing questions about whether the ECB can credibly hold rates as high as the BoE.
At Thursday’s ECB press conference, President Lagarde echoed the BoE’s language almost precisely — the ECB is data-dependent and will not pre-commit to any rate path. But with weaker data coming through, the pressure to cut ahead of the BoE is building. If that happens, the interest rate differential between the UK and the eurozone would widen further, which is typically supportive for GBP to EUR.
The Federal Reserve: a divided house
The week’s most talked-about decision came from the Federal Reserve on Wednesday. The Fed held rates at 3.75%, but it was the vote split that rattled markets. Eight members voted to hold, while four dissented. Reuters described this as the most pronounced division since 1992, and that context matters: it signals deep uncertainty within the world’s most influential central bank about where rates go next.
The reaction in markets was swift. Investors began repricing how soon the Fed might pivot to cuts, which caused ripple effects across global currency pairs. By Friday, however, strong US jobs data helped stabilise sentiment. Nonfarm Payrolls and Average Hourly Earnings both came in ahead of expectations, reinforcing the idea that the US economy, and by extension, the US dollar, remains resilient.
The wildcard: oil, the Strait of Hormuz, and what it means for GBP and EUR
Perhaps the most significant — and underreported — factor influencing currency markets right now is what is happening in the Strait of Hormuz. Permanent ceasefire talks between the US and Iran remain unresolved, and recent reports suggest the two sides remain far apart. A dual blockade of the strait has reduced daily ship traffic from a pre-war level of 100–130 vessels to just 6–7.
The Strait of Hormuz handles approximately 25% of the world’s oil supply. Sustained disruption to that flow has already created extreme volatility in oil prices — and the implications for European and UK currencies are significant, but asymmetric.
The eurozone is broadly more exposed to this supply disruption than the UK. European manufacturing and energy infrastructure are more tightly coupled to Middle Eastern supply chains, and the energy price shock is hitting at a time when the eurozone economy is already weakening. This is one of the reasons the euro has struggled to rally despite a broadly cautious global monetary environment.
What to watch this week
This week is lighter on UK data, the main domestic event is Thursday’s local elections, which carry political weight beyond their usual significance. A poor set of results for Labour could intensify pressure on Prime Minister Starmer and raise the prospect of a leadership challenge. Currency markets dislike political uncertainty, it creates unpredictability around fiscal policy, taxation, and government spending, none of which are positive for sterling.
On the data front, the most significant releases are Friday’s US Nonfarm Payrolls for April and the string of ECB speeches throughout the week, including Lagarde on Tuesday and Lane on Wednesday and Thursday. Any shift in tone from the ECB could move EUR to GBP materially.
For eurozone watchers, Wednesday’s PPI data and Thursday’s Retail Sales figures will give a clearer read on whether the deterioration in the German data was a one-off or the beginning of a broader trend.
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.
