Sterling Surges 1.5% as BoE Holds Rate; Euro Also Gains

Here’s this week’s overview of the Euro and Sterling:

Sterling

Sterling closed 1.5% stronger at 1.331 against USD at close on Friday last week, a 2024 high. Last week’s rate hold by the BoE and an unexpectedly large rise in UK retail sales added to markets forming expectations that the BoE will follow a path that is more hawkish than the Fed.

The jumbo Fed 50bp cut when compared against the steady BoE gives an outsized advantage to sterling as UK-US rate paths are expected to diverge further for the remainder of 2024 and into 2025.

Euro

The Euro gained by 0.7% against the dollar last week and ended the week trading at 1.116. As with nearly all currencies, the weakening dollar was the major driving force behind last week’s gains.

The only major data points last week were wage growth data and the labour cost index, which both came in over expectations.

ECB president Lagarde has previously pointed out these two metrics as a key part of monetary policy decision making. The fact the labour market clearly remains robust is bullish for the Euro.