🇬🇧 GBP Gains Momentum After BoE Holds Rates Steady
A positive week for GBP saw the Pound reach a two-month high against the Dollar and rally to a five-week high against the Euro following the Bank of England’s latest decision. However, it begins the new week on the back foot, with GBP/USD opening at 1.35 and GBP/EUR hovering below 1.16. Sterling’s recent strength follows the Bank of England holding interest rates steady while maintaining a cautious stance on inflation.
The Monetary Policy Committee (MPC) voted 8–1 to keep the Bank Rate at 3.75%, with one member favouring a 25 basis point increase. Governor Andrew Bailey noted that a softer economic backdrop justified holding rates for now. Despite this, GBP has remained stable with a slight upward bias, though risks persist. The Bank signalled that several MPC members stand ready to raise rates if broader inflationary pressures (beyond energy and food) persist. Meanwhile, escalating tensions in the Middle East are adding to these concerns via energy markets, keeping traders focused on geopolitical risks.
🇺🇸 Dollar Slides After Japanese Intervention
Cable pushed to a two-month high last week, with Friday extending Thursday’s sharp 1% rally, driven largely by broad USD weakness. The move followed Japanese FX intervention, with authorities reportedly selling $60–80 billion to support the yen, triggering a wider Dollar sell-off and lifting G10 currencies including EUR and AUD.
Momentum has potential to carry into the start of this week amid thin liquidity due to holiday closures. However, the Dollar is attempting to stabilise, with DXY finding support on rising geopolitical tensions. Conflicting reports around US naval movements in the Strait of Hormuz and a spike in oil prices have added to market uncertainty. With oil rising and geopolitical risks elevated, safe-haven demand could begin to support the Dollar, potentially capping further upside in GBP/USD.
🇪🇺 ECB Holds Rates as Markets Eye Potential Hike
Regarding the Eurozone, the European Central Bank held interest rates steady last week, but this has led many economists to suggest the next move could be a rate hike. While headline inflation has fallen, services inflation remains elevated, and the full impact of Middle East tensions, particularly through energy markets, has yet to be felt. This leaves the ECB facing a delicate balancing act as inflation is not fully under control, yet it is not accelerating sharply.
At the same time, economic growth continues to outperform expectations, supported by strengthening domestic demand as lower interest rates and fiscal support feed through the economy. EUR/USD begins the week on the back foot, slipping below the 1.17 mark amid rising geopolitical tensions following Monday’s trading session.
This Week’s Currency In Focus – Japanese Yen
This week’s currency focus turns to the Japanese yen, which dominated global FX headlines following a decisive intervention by authorities. Japan’s Ministry of Finance is estimated to have sold $60–80bn, triggering a sharp rebound in the Yen across Thursday and Friday, with gains largely holding.
The move was driven primarily by extreme Yen weakness caused by wide interest rate differentials, while Middle East tensions have only added indirect pressure via higher energy costs. Notably, there has been little sign of aggressive dip-buying, suggesting markets are taking the intervention seriously. The scale of the move, driving a roughly 1.5% gain against the Dollar over five days, marks it as significant. Crucially, this is unlikely to be forgotten quickly, with traders expected to act more cautiously around the yen, aware that further decisive action remains a real risk.
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