Last Thursday, the European Central Bank raised interest rates for the first time since 2023 — a move that had been widely expected, but one that still matters. It signals that the era of “wait and see” is over, and central banks are now actively responding to a world reshaped by rising energy costs and persistent inflation, much of it linked to the ongoing conflict in the Middle East.
But the ECB was just the opening act. This week, two more of the world’s most influential central banks make their move: the US Federal Reserve on Wednesday, and the Bank of England on Thursday. Both decisions have the potential to move exchange rates — and both arrive at a moment when the economic picture, on both sides of the Atlantic, is far from settled.
For anyone with an international transfer in the pipeline — whether you’re buying a property abroad, paying school fees overseas, supporting family in another country, or simply moving savings between currencies — this is a week worth paying attention to.
Here’s a closer look at what’s happening, currency by currency, and what it could mean for you.
Latest market insights:
Pound to euro:
Sterling is holding steady — but watch the gap
- The pound has been broadly stable against the euro over the past week, trading in a fairly tight range. Part of the reason for that stability is structural: the Bank of England’s interest rate currently sits well above the European Central Bank’s, even after last week’s hike. Higher interest rates tend to support a currency, and that gap has been doing a lot of work for sterling.
- But that gap is precisely what’s now under the microscope. The ECB has signalled that more hikes could be on the way — markets are currently pricing in at least one more before the end of the year. If that materialises, the gap between UK and eurozone interest rates will start to narrow, and historically, that kind of shift tends to support the euro.
- What does that mean in practice? If you’re planning to convert pounds into euros — whether for a property purchase in France, Spain, or Portugal, for renovation costs, for a pension transfer, or simply to send money to family living in the eurozone — a stronger euro means each pound buys you less.
- To put a number on it: on a €400,000 property purchase, even a modest 1% shift in the exchange rate works out to roughly £3,500. That’s not a hypothetical. It’s the kind of figure that can be the difference between staying within budget and needing to find extra funds at short notice — often at the worst possible moment, like the final stages of a property purchase.
- This is exactly the kind of situation a forward contract is designed for. Rather than waiting to see which way the rate moves and hoping for the best, a forward contract lets you lock in today’s rate for a transfer you’ll make in the future. You don’t need the full amount upfront — just a deposit — and from that point on, you know exactly what you’ll pay, regardless of what the ECB, the Fed, or anyone else decides next.
US dollar to euro:
The dollar’s safe-haven status is being tested
- While most attention this week will likely be on sterling, there’s a quieter story developing in the background. The US dollar has been under some pressure recently, caught between ongoing tensions in the Middle East — which would normally support the dollar as a “safe haven” currency — and a recent US inflation reading that came in hotter than expected, which complicates the picture for the Federal Reserve.
- At the same time, the European Central Bank has shifted into a tightening posture for the first time in years. A central bank raising rates, combined with a dollar whose usual safe-haven appeal is being questioned, could mean the euro strengthens against the dollar even as most headlines focus elsewhere.
- For UK readers, this matters less directly — but if you have any exposure to US dollar to euro (for example, if you hold savings or investments in either currency, or if you’re managing payments that route through both), it’s worth keeping on your radar.
Pound to US dollar:
A pivotal week, with two major decisions back to back
- Sterling has had a tougher run against the US dollar recently. Recent UK GDP figures showed the economy contracted slightly in April, and that data has reinforced concerns among investors about the pace of UK growth — and, by extension, what the Bank of England might do with interest rates going forward.
- This week could prove to be a turning point, for better or worse. On Wednesday, the Federal Reserve holds its first policy meeting under new Chair Kevin Warsh. While no rate cut is expected at this meeting, it’s the first real test of how markets read his leadership — and first impressions in these situations can move currencies even without an actual rate change.
- Then, on Thursday, it’s the Bank of England’s turn. Given the recent disappointing growth data, all eyes will be on what the Bank signals about the path ahead for UK interest rates. A more cautious tone could put further pressure on the pound; a more confident one could support it.
- Put together, that’s two major central bank decisions in consecutive days — both with the potential to move pound to US dollar, and neither outcome is a foregone conclusion. If you have a transfer involving US dollars on the horizon — whether that’s a property purchase, an investment, paying for goods or services priced in dollars, or repatriating funds — this is a week where having a plan in place matters more than usual.
One more thing to watch: the Makerfield by-election
- On Thursday — the same day as the Bank of England’s rate decision — voters in Makerfield go to the polls in a by-election. Andy Burnham is widely expected to win the seat and return to Westminster, a result that many commentators believe could have significant implications for the future direction of the Labour Party.
- On its own, a single by-election result is unlikely to move currency markets in any meaningful way. But context matters. This result lands on the same day as a major Bank of England announcement, immediately following a Federal Reserve decision the day before. When multiple significant events stack up on the same day, even smaller stories can add to overall market noise and volatility — particularly for sterling.
- It’s not the headline event of the week. But it’s one more reason why Thursday, in particular, is worth watching closely.
If you have an international transfer coming up in the next few weeks or months — for a property purchase, a pension payment, supporting family abroad, or any other reason — the events of this week are a useful reminder that exchange rates can move quickly, and not always in the direction you’d hope.
The good news is that you don’t have to simply wait and see what happens. Speaking with a currency specialist costs nothing and carries no obligation. They can talk you through your options — including spot contracts for transfers you need to make now, and forward contracts for transfers you’re planning further ahead — and help you understand how today’s rate movements might affect your specific situation.
Whatever the Fed, the Bank of England, and the wider markets decide this week, having a clear plan means you’re prepared either way. Contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
