Sterling makes strong start to 2026

Chart: GBP/EUR

Sterling has started 2026 on the front foot.

Versus the dollar, the pound is up 0.9% so far this year, back at the $1.35 mark which has presented resistance to previous rallies over the past four months.

Against the euro, sterling has also gained 0.9% in 2026 (chart above), to hit its highest since mid-September. Having crossed above its 100-day moving average (blue line) versus the euro in the first session of the year, the pound is now close to testing the 200-day moving average (red line).

Sterling’s headway has been attributed to factors including comments by Prime Minister Sir Keir Starmer that the UK is to seek a closer trading relationship with the EU, potentially boosting economic growth, besides some idea of reduced political risk, with post-Budget nerves settling. 

However, it also reflects reduced expectations of a eurozone interest rate cut this year, after data showing an easing in French inflation, and signalling some softening in EU economic growth last month.

The dollar, meanwhile, after falling in 2025 by the most in eight years, is widely expected to depreciate further this year, weighed by worries over the US fiscal deficit and expectations that the Trump administration will choose Federal Reserve chairman open to US interest rate cuts.

Weakness in the dollar, in which commodities such as grains are mainly denominated, would enhance pressure on UK ag values in sterling terms. At the exchange rate of a year ago, London wheat futures for May-26 would be worth an extra £14/t above the £171/t at which they were trading on Tuesday.