Currency news / August 6, 2025

UK fiscal clouds add to BoE risk

3 min read Thanim Islam

Thanim IslamAugust 6, 2025

Market snapshot:

NIESR projects £40bn+ UK borrowing gap; tax increases likely
USD softens as stagnant US services data boost Fed cut expectations

Yesterday's currency recap

USD traded weaker on Tuesday as soft US services data reinforced expectations of Fed easing. The ISM services index slipped into near‑stagnation in July, missing all forecasts as firms cut headcount amid tepid demand and rising costs.

CHF gained after Switzerland’s president flew to Washington in a last‑minute effort to reduce looming US tariffs, while JPY lagged peers on renewed speculation the Bank of Japan could tighten policy at its next meeting.

GBP firmed slightly as markets braced for Thursday’s Bank of England decision, where a quarter‑point rate cut looks likely.

CAD was steady despite the country posting a record trade deficit.

Today's GBP rates

Currency pair	Daily move*	Indicative rate**
GBPAUD	0.16%	2.0573
GBPCAD	0.22%	1.8344
GBPCHF	0.08%	1.0743
GBPDKK	0.12%	8.576
GBPEUR	0.12%	1.1492
GBPJPY	0.50%	196.324
GBPNOK	0.02%	13.6448
GBPNZD	0.34%	2.2563
GBPSEK	0.12%	12.853
GBPUSD	0.20%	1.3311

*Daily move - against G10 rates at 7:00 am, 06.08.25
** Indicative rates - interbank rates at 7:00 am, 06.08.25

Key data points

Currency	Event	Period	Consensus	Previous
EUR	Retail Sales MoM	Jun	0.30%	-0.70%
EUR	Retail Sales YoY	Jun	2.60%	1.80%

What we think

The calendar is light, with eurozone retail sales the main release.

In the UK, fiscal risks are back in the spotlight: the National Institute of Economic and Social Research warned the government is set to miss its borrowing target by more than £40bn, with the think tank cautioning that taxes will need to rise this autumn if Chancellor Rachel Reeves is to stick to her self‑imposed borrowing rules. These warnings underscore the tightrope the BoE must walk as it heads into tomorrow’s policy decision. Markets are fully pricing a 25bp rate cut, with some chatter around a potential 50bp move if the bank signals greater urgency in easing policy.

With limited catalysts today, FX markets may stay range‑bound, but the dollar bias remains tilted lower after the soft ISM print. For sterling, the fiscal backdrop adds downside risk: a dovish BoE cut paired with looming tax hikes could weigh on sentiment and growth expectations.

Read more about the Bank of England's interest rate decision here:

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