The British pound strengthened past $1.336, reaching its highest level in over a week, as investors grew increasingly optimistic ahead of a series of pivotal UK economic releases and a major political breakthrough with the European Union.
Sterling rises to over one-week high
Market participants are eagerly anticipating Thursday’s flash PMI data, which are widely expected to indicate a smaller contraction in the manufacturing sector alongside a milder decline in services activity. These readings could signal a gradual stabilization in the UK economy after recent headwinds.
Adding to the positive sentiment, April’s inflation figures are forecast to climb to 3.3%, marking the highest level in 14 months, while core CPI—an important gauge that excludes volatile food and energy prices—is anticipated to reach 3.6%. This uptick in inflation may influence the Bank of England’s monetary policy outlook, potentially prompting further interest rate adjustments to keep inflation in check. Retail sales are also projected to have risen by 0.4% for the month, extending a four-month streak of growth despite ongoing concerns about fragile consumer confidence and cost-of-living pressures.
UK-EU deal boosts pound
Further bolstering the pound’s appeal, the UK and the EU announced a landmark agreement aimed at resetting post-Brexit relations. The comprehensive deal encompasses enhanced cooperation on energy security, joint defense initiatives, and mutually agreed fishing rights that will remain in place through 2038. This breakthrough reduces political uncertainty and lays a more stable foundation for future economic ties between the two parties.
On the other side of the Atlantic, the US dollar softened following an unexpected credit rating downgrade from Moody’s, which cited mounting concerns over the rising national debt and political gridlock in Washington. The downgrade has added to worries about the US fiscal outlook, dampening investor appetite for dollar-denominated assets and contributing to the pound’s relative strength in the global currency markets.
