The pound hit a new milestone last week, breaking through the 1.20 barrier against the euro for the first time since March 2025, and one of the few times since the Brexit referendum. Although it has slipped back a little in early trading this morning, the rise followed a week in which the markets priced a Bank of England (BoE) interest rate rise on Thursday as a near certainty.

Sterling has also been looking lively against the US dollar, strengthening to its best for a month and a half. We are now in the week in which the American public have their chance to give a verdict on two years of Trump 2.0, so who knows where GBP/USD will be by next Monday. The US Federal Reserve doesn’t have to make a decision on rates for another five weeks, but disappointing earnings results from companies like Alphabet and Amazon have cooled the need for them to be overly hawkish, and USD has suffered as a result.

On Friday we left oil prices at their highest in five years, with Brent Crude at $118 per barrel, so there is no promise of better news on prices, even as interest rates rise. Moreover, there is every expectation that conflict between the USA and Iran will resume after the vote on Thursday.

Financial markets are now pricing in around a 95% chance that the Bank of England will raise interest rates on Thursday. A quarter-point increase is widely expected, leaving investors more interested in what Andrew Bailey says about the prospect of further rises. Sterling’s reaction may depend less on the decision itself than on how much more tightening the Bank signals.

Sterling escaped the Budget unscathed last week and will have been reacting well to the idea that closer links with Europe are in the offing. However, with so many positives now priced in – what the market thinks is positive that is – there remains plenty of potential disappointment.