The pound went into the weekend with a bit more spring in its step, after a run of UK data nudged the “soft landing” story back into the foreground. Two potential threats to sterling’s stability have also been neutralised for now: Greenland and Andy Burnham.

The purchasing managers’ index (PMI) for UK services was, at 54.3, its best for close to two years and far ahead of market expectations. UK manufacturing was also being viewed optimistically for the first time since September 2024.

The official retail sales numbers also showed a solid December rebound. This resilience – following last week’s bounce in inflation – has forced a reassessment of just how quickly the Bank of England can justify cutting rates, and sterling strengthened as a result.

The UK wasn’t an outlier, however, as Germany’s PMI also improved and the eurozone’s as a whole stayed more or less level. Price pressures in services were a theme, with German wage changes flagged as a key driver in the survey commentary, complicating the ECB’s path to easing. For all the hoopla about US economic growth, their PMI flatlined at a level below the UK’s

Currency investors are seeking out the economies least likely to cut interest rates. Last week of GBP, EUR and USD, that was the pound. But all three made some chunky losses to the Scandinavian and antipodean currencies.

For the dollar, the data is still “foggy”, with key inflation and jobs numbers still distorted by the recent government shutdown and clouding Wednesday’s interest rate decision from the Federal Reserve. Most expect no change in rates, but it could still go either way – a cut or no cut. Volatility appears to be the only guarantee.

Also notable for the pound, a ruthless Keir Starmer denied a potential rival from the left the chance to unseat him, as a Labour Party committee prevented Andy Burnham contesting a parliamentary by-election. This should, in theory, support sterling through election season in May.

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