Sterling Update: GBP maintained its strength this week

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP 

GBP maintained its strength this week against other major currencies including the EUR and USD, both of which are feeling the pressure of the upcoming interest rate cuts scheduled for September. Investors continue to look towards the sterling during this period of relatively strong economic data.

Last week’s meeting between Prime Minister Keir Starmer and German Chancellor Olaf Scholz also will have boosted the pound as it indicated a new chapter in the development of relations between the UK and Germany. The UK-Germany treaty will be part of a wider reset with Europe, planned to be agreed upon early next year, potentially benefiting the UK currency in the short term.

Due to a rescheduling, next Thursday, Governor Andrew Bailey and other members of the Monetary Policy Committee are due to testify before the Parliament Treasury Committee on inflation and the economic outlook.

EUR

The influence of the far-right Alternative für Deutschland (AfD) party has surged following recent regional state elections, where the party secured a 32.8% vote share in the eastern state of Thuringia. This marks the first time a far-right party has achieved such a result since World War II. The AfD is also polling high in Saxony and Brandenburg, both of which are holding elections in September.

The AfD’s strength in Germany places immense pressure on the EU. Chancellor Olaf Scholz has demanded that mainstream German parties avoid working with “right-wing extremists” as the AfD wins this signficant victory in state elections. The political uncertainty this will sow in Europe’s largest economy is likely to weaken the euro if polls continue to show a lack of support for centrist parties leading up to the federal election in September 2025. Historically, markets respond negatively to political uncertainty, which could lead to volatility.

This week saw a plethora of PMI data releases from European regions. The EU’s final manufacturing PMI came in slightly above forecasts at 45.8, remaining in contraction. The largest influences were downturns in factory output from two of the eurozone’s largest economies, Germany and France.

Meanwhile, the EU’s final services PMI data fell below forecasts at 52.9. Despite this, the eurozone’s private sector economy expanded at its strongest pace since May during August, driven by a quicker upturn in services activity. This marked the sixth successive month of growth – the longest sequence in over two years.

This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.