CAPITALDIGEST MARKET REVIEW, 02/11/2026

POUND STANDS TALL AS DOLLAR, EURO WILT

The pound was one ​of the better performing currencies on Friday, drawing strength from the government’s budget and supported by ‌expectations for the Bank of England to raise rates next week. John Healey delivered his first budget as finance minister under Labour Prime Minister Andy Burnham on Wednesday. Investors had widely expected what some had termed a “do no harm budget” and Healey’s spending plans did not ​provide any surprises to move the pound or gilts strongly in either direction, or materially change ​the outlook for interest rates. He said the headroom — the amount of extra spending or tax ⁠cuts the government can make under its own fiscal rules — stood at £15 billion ($19.93 billion), in line with expectations ​from a Reuters poll, but below the £23.6 billion in March. With that risk event out of the way, and expectations set ​for a rate rise from the BoE next week, sterling was up 0.4% on Friday at $1.3429, making it the best-performing major currency of the day. The pound is heading for a 1% gain against the dollar this month, its first monthly gain since August. ​It has fallen 0.6% against the dollar in 2026, handily outperforming the euro , which has fallen nearly 5%, and ​on a par with the yen , which is also down 0.6% against the US currency. Its performance against the euro this year ‌is even ⁠starker. The euro has lost over 4% against sterling, although this is more driven by broad-based negativity towards the single European currency than by outright optimism over the pound, as evidenced by the vast position investors have built up that bet against the euro itself . Money markets show traders are almost fully pricing in a hike from the ​BoE next week, followed by ​a second in February, ⁠a third by July and a 50% chance of a fourth by December 2027. With the British economy consistently beating expectations, government bond yields on the rise, inflation at ​3.1% and forecast to rise to roughly double the target, and no sign of ​the war in ⁠the Middle East ending any time soon, most economists believe it is now time to increase borrowing costs. “We expect the Bank of England’s patience to have run out with the unfolding energy shock. Stronger growth has led to a stabilising ⁠labour market. ​Excess capacity may be less than previously thought. And with energy ​prices rising further, and CPI poised to top 4% year-on-year next year, one question remains for the MPC: is the Bank Rate sufficiently restrictive?” ​Sanjay Raja, chief UK economist at Deutsche Bank, said in a note.

STERLING INCHES LOWER AHEAD OF HIGHLY ANTICIPATED UK BUDGET

Sterling dipped against the euro and ​the dollar on Wednesday ahead of a highly anticipated budget announcement that will detail ‌how Prime Minister Andy Burnham’s government plans to address the country’s fiscal needs without rattling the bond market. The pound eased 0.1% to a more than one-week low of $1.329, while it was also off 0.1% against the euro , at 83.7 pence. The ​single European currency hit its lowest since May 2025 against sterling on Tuesday. announce a cautious budget plan in parliament just after 1230 ⁠GMT that will detail how he plans to generate revenue to finance growth, including defence and artificial ​intelligence spending while also addressing the high costs of living pressuring the public. Banks, gambling firms and online marketplaces such ​as Amazon (AMZN.O) and Temu (PDD.O) are expected to be hit with higher taxes at a time when budget forecasters have said fiscal headroom has shrunk to about £15 billion. continue. “Spending increases look set to be modest, with relatively small new commitments paid for ​by reallocating money from elsewhere rather than through extra borrowing,” Matthew Ryan, head of market strategy at ​Ebury, said in a note. Any indication of a heavy reliance on debt could spark a selloff in the pound and ‌gilts, at ⁠a time when investor appetite for sovereign issuance in developed markets has been declining because of concerns about soaring public debt. A selloff in French bondsthis month was a recent reflection of this sentiment. Healey has said he would stick to the government’s fiscal targets. The yield on 30-year gilts was up 2 basis ​points, having eased slightly ​from the highest level ⁠since early 1998 hit earlier this month. “For sterling and gilts, we see the bar for a positive surprise as high. With a market-friendly budget priced in, the ​path of least resistance is lower for the pound and bonds,” Ryan ​said. Despite losses in ⁠recent sessions, sterling is marginally higher this month, buoyed by expectations that the Bank of England will hike interest rates by at least 25 basis points next month, LSEG-compiled data showed. Later in the day, global markets will ⁠be ​focused on the US Federal Reserve’s monetary policy decision, with a ​Reuters poll of economists anticipating no change. However, traders see the central bank hiking interest rates by another 25 basis points in December, the ​CME Group’s FedWatch Tool showed.

DOLLAR FALLS AFTER FED HOLDS RATES STEADY

The US dollar fell against major currencies on Wednesday after the Fed ‌delivered a rate decision in line with expectations, while the New Zealand dollar fell sharply after that country’s central bank surprised markets by leaving interest rates unchanged. The Fed held interest rates steady, as expected, opting to delay any changes to borrowing costs until after next week’s US midterm elections ​and awaiting further data on the path of inflation. The dollar had a muted immediate reaction following the announcement of ​the Fed decision, but it began losing ground later as Chair Kevin Warsh spoke in a ⁠press briefing. The euro was up 0.32% against the dollar at $1.1160. Against the Japanese yen , the dollar was down 0.04% at 157.87 yen. “The ​US dollar is softer than it was going into the FOMC as there’s been a steepening in the yield curve,” said Marc ​Chandler, chief market strategist at Bannockburn Global Forex. The Treasury yield curve steepened after Warsh started his press conference, with the 2-year note yield, which typically moves in step with Fed interest rate expectations, falling 1.46 basis points to 4.722%. Markets are currently pricing in a nearly 85% chance of a ​Fed rate hike in December, according to the CME’s FedWatch tool. The dollar index , which measures the greenback’s strength against a basket ​of six other currencies, was down 0.2% at 102.15. “This meeting landed right on target for what expectations were,” said James St. Aubin, chief investment ‌officer ⁠at Ocean Park Asset Management. “There wasn’t much probability of a rate hike.” British finance minister John Healey told parliament on Wednesday he would raise taxes on banks, gambling and income for savers and landlords, while tightening value-added tax rules for online marketplaces such as Amazon (AMZN.O), to fund the country’s budget package. The pound was up 0.12% against the dollar at $1.3323 and was down about 0.08% versus the ​euro. The New Zealand dollar ​sank as much as 1.74% ⁠to $0.5583 after the Reserve Bank of New Zealand held interest rates at 2.75%, surprising a large majority of economists who had expected a rate hike. The Bank of Canada raised its key policy ​rate for the first time in more than three years and said further increases might be ​needed to prevent ⁠soaring energy costs from fueling broader inflation. The Canadian dollar strengthened 0.37% versus the greenback to C$1.4 per dollar. “The Reserve Bank of New Zealand disappointed markets and the New Zealand dollar sold off in response. It’s the weakest of the G10 currencies. The Bank of Canada ⁠just hiked ​rates but it was expected. The Canadian dollar hasn’t reacted much to the ​hike,” Chandler said. The European Central Bank and the Bank of Japan are expected to deliver monetary policy verdicts on Thursday and Friday, respectively, with both central ​banks expected to leave policy rates unchanged.

POUND STEADY AFTER HEALEY’S CONTINUITY BUDGET

The pound held mostly steady on Thursday, a day after finance minister John HEALEY’s budget that offered a cautious set of tax and spending plans to ​help households hurt by “global economic storms”, which had minimal impact on UK ‌markets. Healey said he would raise taxes on banks, gambling, savers and landlords, while also tightening value-added tax rules for online marketplaces — such as Amazon (AMZN.O) and eBay (EBAY.O) as well as introducing measures to ease the hit from rising ​energy bills. Sterling , which is the best-performing major currency against the dollar this month, ​with a 0.52% gain, was last flat on the day at $1.3325. It ⁠has also gained a similar amount against the euro in October, which has taken the ​single European currency to its lowest in 17 months. The euro was last down 0.1% at ​83.62 pence, ahead of a monetary policy decision from the European Central Bank, which is expected to leave euro zone rates unchanged later on Thursday. Healey said on Wednesday he would use some of his buffer for ​meeting his main fiscal target, which shrank to £15 billion ($20 billion) from a previous estimate of £24 ​billion, while meeting his commitments for repairing the public finances despite the Iran war shock. “A ‘continuity Budget’ with fiscal ‌headroom ⁠upside potential pushes the pound’s perceived fiscal risks to the background,” Barclays FX strategist Lefteris Farmakis said of the pound in a broader note on the budget. Investors and analysts on Wednesday said the budget left Britain’s fiscal outlook largely unchanged, a potential positive. “We think today’s ​budget means the pound ​can continue to benefit ⁠from the theme of reduced UK political uncertainty versus elsewhere. We stay long sterling/dollar,” BNP Paribas strategists said in a note. The budget ​did little to materially change market expectations for the Bank of ​England’s meeting next ⁠week. Traders are fully pricing in a rate increase from the BoE on November 5, with a second hike fully priced in by February, according to money markets . The Federal Reserve left US ⁠rates unchanged ​the previous day, as widely expected, opting to delay ​any changes to borrowing costs until after next week’s US midterm elections while it awaits further data on ​inflation, which the central bank said “remains elevated.” ($1 = 0.7503 pounds)

EURO EDGES UP VERSUS DOLLAR AFTER ECB HOLD RATES 

The euro edged higher on Thursday after the European Central Bank kept ​interest rates unchanged, while the dollar eased against most major currencies after data showing rising US inflation. The ECB left interest rates ‌unchanged in a well-telegraphed move but warned inflation risks were rising due to surging energy costs. The central bank also announced the early departure of President Christine Lagarde, who will step down on February 7, ahead of the end of her tenure in October 2027. The euro fell to its lowest against the dollar since May but was last up ​0.13% at around $1.1167. The euro weakened 0.21% against the pound to 0.835. “As expected, the ECB leaves rates unchanged at today’s meeting, but ​signals that a rate hike in December is firmly in play, citing upside risks to the inflation outlook,” said Marchel ⁠Alexandrovich, European economist at Saltmarsh Economics. “The bigger news is the confirmation that Christine Lagarde will leave her post in February, rather than in October ​of next year. Markets will not be surprised by the announcement, but it will bring into focus the fact that the ECB is heading for a ​significant reshuffle in the first half of 2027, with Isabel Schnabel, Lagarde, and Philip Lane — the ECB’s de facto chief economist — all set to depart imminently.” US Commerce Department data showed that inflation accelerated in September as consumers paid more for gasoline and other goods, supporting economists’ expectations of an interest rate increase from the Federal ​Reserve in December. The US economy, however, grew faster than expected in the third quarter, helped by resilient consumer spending and AI-driven business investment, data also ​showed. The dollar has not reacted significantly to the latest economic events largely because much of the data had been as expected and had already been priced in, said ‌Eugene Epstein, ⁠head of structured products for Moneycorp North America. The dollar weakened 0.27% to 0.826 against the Swiss franc. Fed Chair Kevin Warsh said on Wednesday inflation can be lowered to the 2% target without having to “throw sand in the gears” and slow growth or raise unemployment, pushing traders to rein in bets for rate hikes in 2027. Warsh also said the central bank would begin setting aside one of its eight regular policy meetings next year and two in 2028 ​to discuss major issues facing the institution ​and would not use them ⁠to consider changes in monetary policy. Still, markets are pricing in a nearly 80% chance of a rate hike in December, according to the CME’s FedWatch tool. The dollar index , which measures the greenback against a basket of currencies including ​the yen and the euro, fell 0.14% to 101.98. Attention is also on the Bank of ​Japan, which concludes a ⁠two-day meeting on Friday and is expected to keep rates steady. The Japanese yen weakened 0.05% against the greenback to 157.91 per dollar. “A hold is widely expected at the BoJ’s MPM this week,” said Bank of America analysts led by Izumi Devalier in an investor note, referring to the bank’s policy meeting. “While we ⁠do not ​expect the meeting to be market-moving for JPY, risks are skewed toward a higher JPY ​upon more than one hawkish dissent, given resilient underlying inflationary pressure.” The New Zealand dollar was up 0.11% at $0.56320, having slumped nearly 2% following the Reserve Bank of New Zealand’s surprise decision ​on Wednesday to keep rates at 2.75%.