What a remarkable week it has been for both the pound and the euro.
Contrary to widespread expectations that new tariffs would bolster the dollar, the currency has experienced a significant decline.
Compounding the dollar’s troubles, European markets have surged following Germany’s decision to relax its “debt brake” and increase defence spending. This policy shift propelled the euro to surpass the 1.08 mark against the dollar.
The pound, meanwhile, has capitalised on the dollar’s weakness, climbing steadily to reach 1.2893 by 21:30 GMT. Is there more momentum ahead? Quite possibly. With the non-farm payroll report due this Friday, we could see the pound hitting 1.30 this week if the dollar’s decline persists.
The market is anticipating further monetary policy easing by the Federal Reserve (Fed). Recent U.S. data indicates a weakening economy, with both businesses and consumers growing increasingly pessimistic.
The U.S. jobs market continues to decelerate, as evidenced by the ADP Employment Change for February. Companies added 77,000 jobs, falling short of the 140,000 expected and well below the 188,000 added in January.
Conversely, the ISM Services PMI for February rose to 53.5, up from 52.8 and exceeding forecasts of 52.6, signalling business expansion. The Prices Paid sub-component increased sharply from 60.4 in January to 62.6, with New Orders and the Employment Index also showing gains.
GBP/USD bulls have so far dismissed the recent U.S. data. Nonetheless, interest rate traders had priced in 74.5 basis points of Fed easing in 2025, down from the 81 basis points expected just a day earlier.
Meanwhile, members of the Bank of England (BoE) have been making notable comments. Megan Greene remarked that inflation is unlikely to persist and would diminish at its own pace, though she added that policy needs to remain restrictive. BoE Monetary Policy Committee member Alan Taylor stated that every meeting would be live for rate decisions.
Additionally, BoE Governor Andrew Bailey indicated expectations of an inflation uptick. BoE Chief Economist Huw Pill emphasised the need for vigilance, noting that evidence argues against more rapid cuts in the Bank Rate.
