GBP/USD >1.3775

GBP/USD has moved up to its strongest levels since October 2021, leaving the pair around a 4.25-year high. The rally has been driven primarily by broad dollar weakness, with sterling also drawing support from a run of UK data that has looked firmer than expected. That combination has encouraged markets to lean a bit less aggressively into Bank of England rate cuts, which in turn has helped underpin the pound.

The backdrop in the US has been just as important. As investors reassess the outlook for US growth, policy uncertainty and global risk conditions, the dollar has softened on a broad basis. When the greenback loses ground, GBP/USD can climb even without a dramatic improvement in the UK story, and that dynamic has been evident in recent sessions.

EUR/USD >1.1975

EUR/USD has also climbed to its highest levels since mid 2021. Like sterling, the euro has benefited from the slide in the US dollar, with global flows rotating away from the greenback and into major alternatives. A steadier tone around parts of the euro area outlook has added some support at the margin, helping the single currency hold onto gains as the dollar’s downtrend has done most of the heavy lifting.

Looking ahead

• Markets will watch closely for any shift in the Fed’s messaging on inflation, growth and the timing of rate cuts, as this remains central to the dollar’s direction.

• Guidance from the Bank of England and the ECB will shape expectations around interest rate differentials and how long sterling and the euro can stay supported.

• US policy headlines and broader risk sentiment are likely to remain key swing factors for FX markets.

• After a strong rally, both pairs may enter a period of consolidation unless new data or policy signals provide a fresh catalyst.