🇬🇧 Sterling Supported as Rate Cut Bets Fade
Positive momentum supported GBP/EUR last week, with the Pound extending gains against the euro through Friday as investors reacted to developments surrounding the Middle East conflict. Sterling recorded its first weekly gain against the Euro in five weeks and its largest weekly advance since April 2025, rising by around 0.3%.
GBP/EUR starts the week just above 1.15, while GBP/USD opens around 1.33. A key driver has been a shift in expectations for Bank of England interest rates. A week ago, markets were pricing in two rate cuts this year, but expectations have now shifted to just one. This hawkish repricing has been more noticeable in the UK than in the Eurozone, providing support for the pound. Rate cut bets have eased as traders anticipate higher global inflation, driven partly by rising energy prices. However, GBP/USD remains under pressure, touching 1.32 last Tuesday as demand for the Dollar remains strong.
🇺🇸 Dollar Rises as Conflict Escalates and Jobs Data Disappoints
Last week saw the US dollar continue to strengthen amid escalating tensions in the Middle East. Hopes of a de-escalation faded on Friday after President Donald Trump stated that military action would only stop with the total surrender of the Iranian leadership. There is little indication that Iran is willing to accept such demands, suggesting military strikes could continue into next week, supporting the safe-haven demand that has been benefiting USD. On the domestic front, US economic data added further uncertainty.
The labour market showed unexpected weakness in last week nonfarm payrolls as the economy shed 92,000 jobs in February, compared with expectations for a 58,000 increase. January’s figure was also revised down to 126,000 from 130,000, while combined revisions for December and January lowered payrolls by 69,000 jobs. The weaker data raises questions about the strength of the US labour market, although ongoing geopolitical risks are likely to keep safe-haven demand supporting the Dollar in the near term.
🇪🇺 Rising Energy Costs and Geopolitics Drag on the Euro
Escalating geopolitical tensions in the Middle East have weighed on the Euro, with early trading on Monday seeing the currency fall as much as 0.8% against USD. Rising oil and gas prices are proving particularly damaging for the Eurozone economy, and with a near-term resolution to the conflict appearing unlikely, the Euro could remain under pressure.
As previously noted, the Euro also recorded its largest weekly loss against the Pound in five weeks. The Euro’s recent underperformance may surprise some investors given the shift in expectations for European Central Bank policy. Markets have begun pricing in the possibility of rate hikes in 2026, with the implied probability rising to around 65% last Thursday. Having learned from the economic shock following the Ukraine war in 2022 in relation to gas and oil surges. Policymakers have signalled they are prepared to either cut or raise interest rates depending on how events develop. For now, markets appear to believe that current conditions could ultimately point towards higher rates in the future, although geopolitical risks are dominating near-term Euro sentiment.
This Week’s Market Moving Data
Once again, geopolitics is likely to dominate market sentiment this week, overshadowing most economic data releases. However, the US will provide key indicators, with GDP figures and Wednesday’s Consumer Price Index (CPI) expected to draw particular attention as traders monitor inflation amid rising global prices. In the UK, a relatively quiet data calendar means Bank of England Governor Andrew Bailey’s speech on Thursday will be the key event for markets. Meanwhile, it is set to be a fairly quiet week for the Eurozone, with limited major data releases scheduled.
Wednesday March 11th
Core Consumer Price Index (CPI) Excluding Food and Energy
The Core Consumer Price Index (CPI), which excludes food and energy, is a key measure of underlying inflation in the US economy. If core CPI rises more than expected, it can strengthen the US dollar as markets anticipate the Federal Reserve keeping interest rates higher for longer, while weaker inflation data can put pressure on the dollar by increasing expectations of rate cuts.
Thursday March 12th
BoE Governor Speech
Bank of England Governor Andrew Bailey will deliver a speech on monetary policy, offering potential insights into the Bank’s outlook and future policy direction.
Friday March 13th
US Gross Domestic Price (GDP) Data Release
US GDP is a key indicator of economic growth and plays an important role in shaping expectations for Federal Reserve policy. A stronger than expected reading typically supports USD by reducing expectations of near-term rate cuts, while weaker growth can pressure the Dollar as markets anticipate a more dovish stance from the Fed.
