Pound Sterling Forecast: How UK Data, the Bank of England and the ECB Could Move Exchange Rates This Week

Key Highlight

Safe haven demand supports the US dollar.

The latest escalation between the US and Iran has increased demand for the US dollar as investors seek safer assets. Higher oil prices have also lifted the Norwegian krone, creating additional volatility across currency markets.

A crucial week for UK economic data.

This week's employment figures, inflation data and retail sales will play a major role in shaping expectations for the Bank of England's meeting on 30 July. Strong results could strengthen sterling, while weaker figures may increase pressure on the pound.

The ECB meeting will be closely watched.

Although the European Central Bank is widely expected to leave interest rates unchanged this week, markets will focus on any guidance about a possible rate increase in September, which could influence the euro's direction.

Market Recap

Sterling finished last week on a softer note as markets lacked significant economic data for direction. Risk aversion has continued into Monday following the weekend's geopolitical developments, boosting demand for the US dollar.

The Norwegian krone was the strongest performing major currency after oil prices climbed to a one month high. Businesses buying Norwegian krone faced higher costs, while those selling benefited from the stronger exchange rate.

The European Central Bank continued to signal that rates are likely to remain unchanged this month, although policymakers left open the possibility of further tightening later this year if inflation remains persistent.

Meanwhile, expectations of a Federal Reserve rate increase this month have faded, with markets now looking beyond July for any potential policy changes should US inflation begin to rise again.

Market Overview

The US dollar begins the week with momentum as geopolitical uncertainty encourages investors towards safe haven assets. However, that outlook will be tested by several important UK data releases before the Bank of England's interest rate decision later this month.

For GBP/USD, sterling remains under pressure in the short term due to stronger dollar demand. However, stronger than expected UK employment, inflation or retail sales figures could quickly improve sentiment towards the pound and reduce expectations of further US dollar gains.

For EUR/USD, the balance continues to favour the US dollar, supported by stronger US economic fundamentals and interest rate expectations. Even so, any unexpectedly hawkish comments from the European Central Bank could provide temporary support for the euro.

For GBP/EUR, the outlook is more balanced. The combination of key UK economic releases and the ECB meeting makes short term direction difficult to predict. Market expectations for both central banks will be the primary driver of movement over the coming days.

The Norwegian krone is also likely to remain sensitive to developments in the Middle East. Elevated oil prices continue to support the currency, meaning businesses with NOK exposure should be prepared for further volatility if geopolitical tensions persist.

What this means for businesses

This is one of the busiest weeks for UK economic data in recent months. With employment, inflation, retail sales and the ECB policy announcement all taking place before the Bank of England meeting, currency markets are likely to remain highly reactive. Businesses with upcoming international payments should monitor developments closely, as exchange rates could move significantly throughout the week depending on the economic data and geopolitical headlines.

20th July 2026

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