Sterling starts the week on the back foot after another weak stretch into the Easter Bank Holiday period. The decline reflects a less supportive market backdrop, with equities giving back recent gains and oil prices moving higher again.
The Pound has now fallen against the Euro for three straight weeks, and the move has looked more clearly negative since mid-March. Attention is also returning to UK political risk. With only a month to go, markets are starting to consider the possibility that a Labour government could turn to more expansionary fiscal policy in an attempt to rebuild support.
That leaves the Pound with limited room for recovery unless sentiment improves. Any rallies may struggle to hold if political concerns continue to build and global risk appetite remains weak. Sterling is also still being driven by events in the United States, especially policy signals from President Trump. Cable opens the week just above 1.32, while GBP/EUR is around 1.14.
The US Dollar remains better supported. Rising geopolitical tension in the Middle East has increased demand for defensive assets, while stronger oil prices have added further support. The Dollar has reversed recent losses against major peers and regained momentum into the new week.
The Euro has continued to strengthen against Sterling, extending its run to three weeks. Even so, this is more about weakness in the Pound than broad strength in the Euro. Against the Dollar, the single currency remains under pressure, with EUR/USD opening the week around 1.15. On policy, the European Central Bank is still cautious. The current view is that if higher energy prices prove temporary, there may be little need for a policy response. That keeps the Euro relatively stable, but without creating a strong positive story of its own.
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