Published: 11/08/2025 By ECAP
At a Glance
The British Pound rose after a rate cut but stagflation risks, Bank splits, and weak growth threaten Sterling’s lasting strength.
The Euro gains support from ECB pause hopes, delayed rate cuts, and optimism about potential easing of the Ukraine conflict.
The U.S. Dollar steadies ahead of key inflation data, with growing bearish sentiment and expectations of Fed rate cuts in September.
STAGFLATION LOOMS
The British Pound rose after a Bank of England rate cut however many analysts warn stagflation, rising inflation with weak growth, threatens lasting strength. With the Bank split and credibility strained by cutting rates while forecasting higher inflation, policy error risks by the Bank of England grow. Overall, strategists broadly expect Sterling weakness as interest rate cuts or hikes both risk currency downside unless UK growth rebounds, placing pressure on the government to deliver economic improvement.
The Euro has been supported by expectations that the European Central Bank will pause its interest rate easing cycle in September. Some economists have delayed rate cut forecasts, reinforcing the Euro’s strength. Alongside that, improved market sentiment over a potential end to the Ukraine war, following news of a possible Trump-Putin meeting, adds further support to the Euro. Overall, hopes of de-escalation and a cautious ECB stance continue to underpin Euro momentum.
The U.S. dollar steadied ahead of July inflation data, with markets eyeing a likely Federal Reserve rate cut in September after weak labour reports. As a result, Bearish sentiment rose, pushing net short positions to their highest since 2021. Fed Governor nominee Miran’s dovish views support expectations of interest rate easing, while strategists predict medium-term USD weakness amid growing inflation and trade uncertainties.
Data supplied by GC Partners