0.0% was the change in the pound’s exchange rate on Monday, with sterling broadly steady against the dollar and euro as traders waited for an expected Bank of England rate hike on Thursday. The move kept the currency near $1.3417 against the dollar and 83.53 pence against the euro.
John Healey’s first budget last week did not jolt the pound or gilts. That calm left currency desks focused on the Bank of England instead, and on whether Thursday brings the first rate increase since August 2023.
John Healey budget left markets calm
Last week’s budget from Healey offered no surprise that forced a sharper move in sterling. Markets took his spending plans in their stride, which is why the pound began Monday with little direction even after a week that could have reset UK pricing expectations.
3.5% inflation and the prospect of a rise above 4% early next year kept the policy debate alive in the background. For a reader holding sterling exposure, that means the currency is trading not on a fresh shock, but on how far the Bank of England may need to go after Thursday.
Four 25-basis-point hikes priced
Four 25-basis-point rate hikes by next September were fully priced in money markets, a path that still sits ahead of the central bank’s own move on Thursday. ING economists and strategists said the Bank had been on "active hold" and warned that "But the worsening energy crisis has made it much harder for the Bank not to act".
That pricing leaves little room for a mild surprise. If the Bank delivers the expected hike and signals more tightening later, sterling traders may keep leaning on the same rate gap rather than chasing a fresh rerating.
Bank of England and Brent prices
$108.37 a barrel for Brent on Monday added another layer to the rate outlook, after the benchmark slipped roughly 4.5% that day but had hit multi-month highs last week. The energy move matters because it keeps inflation pressure in the conversation while the Bank of England weighs whether Thursday’s step is the start of a longer tightening cycle.
Japan exports beat 18.6% forecast in June, Pound to euro exchange rate watch offers a useful read-through for traders tracking how global data can spill into sterling pricing. The immediate test now is whether Thursday’s decision changes the pound’s narrow band or leaves it trapped between a flat budget response and aggressive market pricing.
“Until now, the Bank would argue it's been on 'active hold'. It was set to cut rates by upwards of 50 basis points this year, so simply not doing that amounted to de facto tightening. By that logic, the Bank has added a similar amount of policy restriction as the European Central Bank, which has lifted its deposit rate twice,” ING economists and strategists said. The pound’s next move will depend on whether Thursday turns that argument into a formal hike, or merely confirms what traders already built into the exchange rate.
