Weekly Market Report
Sterling had a difficult week, falling against both the Euro and the Dollar despite receiving what should have been supportive economic data. UK economic growth beat expectations for Q1 2026, expanding by 0.6% during that period which was the fastest quarterly growth rate in more than a year. Under normal circumstances, this result would usually have given the Pound a boost but instead political risk became the dominant driver. Health Secretary Streeting’s resignation and renewed calls for Prime Minster Starmer to step down intensified concerns of a formal Labour leadership contest. UK CPI inflation data due this week will be closely watched.
In the US, Kevin Warsh was confirmed by the US Senate as the new Federal Reserve Chairman, taking over from Jerome Powell. Warsh takes over at a time when US inflation has remained above the Fed’s 2% target for over 5 years and is being pressured by the oil shock due to the war in the Middle East. The market seems to have mostly priced out an interest rate cut and it is widely expected that Warsh’s first FOMC meeting will lead to rates being left unchanged. US consumer price inflation accelerated to 3.8% year on year, the highest level since May 2023 which has given the Dollar support.
Geopolitical developments continue to drive the underlying inflation and energy situation. President Trump has rejected Iran’s latest peace proposal, and Brent crude oil remains above $100 a barrel.
What this may mean for businesses
The political premium on Sterling is a genuine budgeting risk – the weakness driven by the prospect of a Labour leadership change shows how quickly political developments can move rates. Clients that have booked forward contracts before the drop will have been insulated from the fall in the Pound.
April UK CPI data releases on 20th May (Wednesday) will influence how the market prices future interest rate expectations.
Forward contracts can be used to help with budgeting over the next few months.
Market orders can be used to target specific rates if we suddenly see GBP strength. Limit orders can also be used to protect yourself from further downside. A combination of the two creates a ‘One Cancels the Other’ order – we are seeing an increase in demand for this from clients.