Pound regains some ground

It was a relatively quiet start to the week in financial markets. In FX, sterling recovered some ground after been under pressure for much of last week, moving back up to around $1.34 against the dollar and edging back below £0.87 against the euro. The single currency was little changed against the dollar, remaining near its recent lows at just under $1.1650. Meanwhile, Donald Trump has said he is pausing a “scheduled” attack on Iran for a few days to let allow negotiations on a “deal” to continue. Oil prices are little changed this morning with Brent crude still hovering around $110 p/b.

UK government bonds outperformed yesterday with yields falling by around 7-8bps across the curve. German yields edged down by 2-3bps, while US yields were slightly lower at the short-end but flat to very marginally higher further out the curve. The latest constellation of interest rate expectations has the market pricing in about 70bps and 55bps of hikes from the ECB and Bank of England this year respectively and a circa 60% chance of a 25bps rate increase from the Fed by year-end.  Meanwhile, in equity markets, European stocks finished in the black albeit off their best levels, gaining just shy of 0.5%, while the S&P 500 in the US ended flat on the day.

The unemployment rate in the UK edged up in the three months to March according to labour market data published a short while ago, to  5% from 4.9% in the three months to February, though this was still a touch lower than in the final three months of 2025 (5.2%). Wage inflation in the private sector eased further with the year-on-year increase in average weekly earnings falling to 3.0% in Q1 2026 from 3.4% in Q4 2025, which will be some source of comfort for the Bank of England amid the inflationary “shock” triggered by the conflict in the Middle East.

For the day ahead, there is not much more in the way of economic data scheduled with just the ADP weekly employment report in the US and the trade balance in the Euro area. A few central bank members (from the ECB, Fed, and Bank of England) are due to speak over the course of the day.