CAPITALDIGEST MARKET REVIEW, 23/02/2026

STERLING NEARS ONE-MONTH LOW AS INVESTORS BET ON BOE RATE CUTS  

The British pound hovered around its lowest in a month against the dollar on Friday, and was headed for its biggest weekly decline since January 2025, as investors weighed mixed economic data and added to bets on Bank of England interest rate cuts. Sterling was last little changed at $1.3468, near Thursday’s one-month low at $1.3435. For the week, the currency was headed for an around 1.3% decline. Investors were contending with mixed economic data after figures published Friday showed that retail sales volumes rose at the fastest annual pace in nearly four years in January. They jumped 4.5% compared to a year earlier, and 1.8% from the previous month, beating expectations. Separate figures, also released Friday, showed Britain ran a in January. “I don’t think we read too much into one retail sales print, although generally speaking, the consumption trend has been a bit better in the UK than we maybe would have expected,” Dominic Bunning, head of G10 FX strategy at Nomura, said. Economic data published earlier in the week had also painted a weaker picture and added to dovish expectations for the Bank of England’s monetary policy, with the UK’s jobless rate picking up slightly in the fourth quarter of 2025 compared to the previous three months and wage growth slowing. Inflation meanwhile eased to its lowest in close to a year. Friday’s data does not “outweigh what we saw earlier in the week,” Bunning said. “The loosening in the labour market and the jump in unemployment, the still very clear downward trends in wage growth that are there – I would still make the case that this points towards the Bank of England continuing to ease over the next, you know, over the next few months,” he said. Money markets were last pricing in a close to 80% chance of the BoE trimming interest rates by 25 basis points at its March meeting, with a further cut being expected later in the year.

DOLLAR DIPS AFTER SUPREME COURT RULES AGAINST TRUMP’S TARIFFS

The dollar declined in volatile trading on Friday and was poised to snap a four-session streak of gains after the U.S. Supreme Court struck down President Donald Trump’s sweeping tariffs based on a national emergency law. The justices, in a 6-3 ruling authored by conservative Chief Justice John Roberts, upheld a lower court’s decision that the Republican president’s use of this 1977 law exceeded his authority. The dollar was initially higher on the day after U.S. economic data showed a higher-than-anticipated inflation reading while economic growth fell well short of expectations. The Commerce Department said gross domestic product increased at a 1.4% annualized rate last quarter, much lower than the 3% growth pace estimate of economists polled by Reuters. Analysts noted, however, that the number was negatively impacted by the government shutdown. “The majority of this week has been dollar positive, except for right now, and why I’d say the ‘sell America’ trade got a little ahead of itself,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto. “We have to see how Trump responds, how (Treasury Secretary Scott) Bessent responds, how the administration responds. We’ve heard all this talk that they have other ways of instituting these tariffs.” Trump said in a briefing after the ruling that he would sign an order to impose a 10% global tariff under Section 122 of the 1974 Trade Act and would initiate several other investigations as well, while Bessent said that estimates by the department show the use of section 122 authority, combined with potentially enhanced section 232 and section 301 tariffs will result in virtually unchanged tariff revenue in 2026. Separately, the personal consumption expenditures price index, excluding the volatile food and energy components, rose 0.4%, the Commerce Department said, after an unrevised 0.2% gain in November and above the 0.3% estimate. It rose 3% in the 12 months through December after a 2.8% climb in November. The dollar index , which measures the greenback against a basket of currencies, including the yen and the euro, shed 0.09% to 97.80, with the euro up 0.06% at $1.1779. The greenback is up nearly 1% on the week, on track for its biggest weekly gain since November. A business survey showed euro zone activity accelerated faster than forecast this month as manufacturing swung back to growth for the first time since October, though the dominant services sector marginally underperformed expectations. The court ruling also did not address the issue of the government refunding the tariffs which were struck down, an issue Trump said could take years in litigation. “The biggest uncertainty was whether the court would address refunds, which they did not. That is going to be the big next fight, with many companies already preparing for litigation,” said Tom Graff, chief investment officer at Facet in Phoenix, Maryland.

STERLING STEADIES AFTER THREE-DAY FALL AS INVESTORS PAUSE FOLLOWING DOVISH DATA

Britain’s pound held steady against the dollar on Thursday, stabilising after three consecutive days of losses as investors took a breather following the release of economic data that bolstered the case for further interest rate cuts. Sterling was largely unchanged at around $1.3483. It touched $1.34816 earlier in the session, its lowest level in nearly a month. The currency has been weighed down by weak economic data this week. The UK’s jobless rate rose to 5.2% in the fourth quarter of last year, compared with 5.1% in the three months prior, data showed on Tuesday, adding to bets that the Bank of England would likely lower interest rates soon. Wage growth, excluding bonuses, also slowed, while dovish expectations gained further steam after data on Wednesday showed inflation in January hit its lowest level since March 2025. “Our economists turned more confident in their base case of a 25 basis points cut in March followed by one additional cut in June, as the previously highlighted upside risks appear to have diminished,” BofA analysts said in a note. Money markets price in roughly an 80% chance of a 25-bps rate cut at the BoE’s March meeting, while a cut is fully priced by April. While sterling steadied against the dollar and was down just 0.1% against the euro at around 87.39 pence , analysts anticipated further weakness.

DOLLAR ADVANCES AFTER DATA IMPLIES STABLE LABOR MARKET

The dollar strengthened for a fourth straight session on Thursday after data indicated the economy was on stable footing, giving the Federal Reserve leeway to hold interest rates in check in the near-term. The Labor Department said weekly initial jobless claims fell by 23,000 to an adjusted 206,000, below the 225,000 estimate of economists polled by Reuters. “It doesn’t look like an economy suffering from higher rates. Even with the pressure from the White House to lower rates, that pressure doesn’t really hit until May, so there’s no real trend to this information right now,” said Joseph Trevisani, senior analyst at FXStreet in New York. “That’s why we’re headed back to a range. Without a reason to move, traders are going to be conservative.”  ssThe dollar index , which measures the dollar against a basket of currencies, rose 0.19% to 97.88, with the euro down 0.14% at $1.1766. The four-day run of gains for the greenback would mark its longest streak since early January.

STERLING STEADY, INFLATION FIGURES REINFORCE NEAR-TERM BOE CUT BETS

he pound was little changed against the dollar as easing British inflation strengthened the case for a near-term rate cut from the Bank of England, even as underlying price pressures remained strong.Annual consumer prices rose 3% last month, slowing from 3.4% in December, according to official figures. Most economists polled by Reuters had expected headline inflation to drop to 3% in January.   inflation for services – closely watched as a gauge of domestic price pressures – slowed only marginally to 4.4% from 4.5% in December, above the Reuters poll expectations for a fall to 4.3%. The pound was flat after the figures at $1.3566. It fell 0.5% on Tuesday after soft labour market figures boosted rate cut expectations.”Most people sold sterling quite hard yesterday and thought there was going to be some follow-through today with softer inflation numbers but they didn’t come in weaker across the board,” said ING global head of research Chris Turner. “Services CPI was a little bit higher than expected so I think sterling has got a little bit of reprieve on that,” Turner added. Investors are assigning a roughly 85% chance of a 25-basis-point rate cut from the BoE next month, up slightly from Tuesday. Money market traders are fully pricing in two quarter-point rate cuts by the end of the year.