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Pound knocked by dovish BoE

Central bank interest rate expectations continued to drive movement in the currency market in the first half of May, with the pound and US dollar particularly exposed to volatility.

During this period, we’ve seen GBP/EUR retreat from €1.17 to €1.16, while EUR/GBP ticked up from £0.85 to £0.86.

At the same time, GBP/USD has traded between $1.26 and $1.24, while EUR/USD appreciated from $1.06 to $1.07.

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Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

What’s been happening?

The pound has struggled so far in May, with GBP/EUR sliding to a three-week low after the Bank of England’s (BoE) latest interest rate decision. While the bank kept rates on hold this month, its dovish forward guidance stoked bets for a possible June rate cut and pulled Sterling lower.

Meanwhile, the US dollar faced headwinds in the wake of the Federal Reserve’s own rate decision. The Fed also left rates unchanged following its May meeting, but Fed Chair Jerome Powell cautious policy statement, coupled with a weak payroll print dragged on USD as it revived bets for multiple Fed rate cuts this year.

In contrast the euro firmed over the past couple of weeks, with stronger-than-expected Eurozone GDP and inflation figures weakening bets for European Central Bank (ECB) rate cuts in the second half of 2024.

What do you need to look out for?

Looking ahead, the immediate focus will be on the latest US consumer price index. Could another robust US inflation print curb recent Fed rate cut speculation and revive demand for the US dollar?

For GBP investors the spotlight will be on the UK’s latest employment and inflation figures. Signs of a slowing labour market or a sharp drop in inflation could cement bets on a June rate cut from the BoE and sink the pound.

Meanwhile, the Eurozone’s latest PMI figures will be closely watched by EUR investors. Will a slowdown in private sector growth place pressure on the euro?

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