The pound delivered a mixed performance on Monday, slipping against the euro while strengthening versus the US dollar. Market moves followed European leaders’ announcement that they plan to draft a Ukraine peace proposal for submission to the United States, a development traders expect to influence regional currency flows.
The euro rose by 0.10% to 82.53 pence. Analysts say the euro could be one of the main beneficiaries of progress on a Ukraine peace deal, and Germany’s willingness to consider higher fiscal spending added further support to the single currency.
Separately, the UK government moved to bolster Ukraine’s defence capacity: Prime Minister Keir Starmer announced a £1.6 billion export finance package to enable Ukraine to purchase 5,000 air-defence missiles.
Against the dollar, the pound climbed 0.3% to $1.2614 and recorded its first monthly gain since September. Despite that improvement, market observers remain cautious. ING forex strategist Francesco Pesole warned that the recent rally in sterling is unlikely to be sustained. He pointed to the upcoming UK budget announcement in late March as a potential trigger for renewed volatility, with the fragile gilt market vulnerable to shifting fiscal signals.
Bank of England Deputy Governor Dave Ramsden flagged continued wage pressure in the UK as a key inflationary concern. While he did not rule out future rate cuts, he suggested they might not be delivered in a straightforward, gradual manner. With monetary policy and fiscal outlooks both in focus, investors are concentrating on a major event later this week: the Treasury Committee’s Wednesday hearing of Bank of England Governor Andrew Bailey, which is expected to be the central financial event driving short-term market sentiment.