The global economy has remained more resilient than many analysts expected, but the forces driving markets are becoming increasingly unusual.
Artificial intelligence investment is supporting growth and financial markets, while inflation, higher energy costs, interest rates and geopolitical tensions continue to create risks for households, businesses and currencies.
For investors and anyone exchanging money internationally, these forces matter because changes in economic expectations can quickly affect the pound, dollar, euro and other major currencies.
Global growth remains resilient
The International Monetary Fund expects the world economy to grow by around 3.1% in 2026 before accelerating to 3.4% in 2027.
That is not recessionary territory, but growth is increasingly uneven.
Countries benefiting from technology investment and the AI boom are performing better, while energy-importing economies and countries with weaker public finances face greater pressure.
The IMF also expects global inflation to remain elevated before easing again, meaning central banks cannot simply assume the inflation problem has disappeared.
AI is becoming a major economic force
At the beginning of 2026, one of the biggest concerns among investors was whether enthusiasm surrounding artificial intelligence had pushed technology company valuations too far.
That question remains relevant.
Hundreds of billions of dollars are being invested in data centres, semiconductors, electricity infrastructure and AI systems. This spending is supporting economic growth and creating strong demand across parts of the technology supply chain.
The optimistic scenario is that these investments eventually produce substantial productivity gains across the wider economy.
The risk is that expectations have moved faster than actual profits and productivity improvements.
If investors begin to doubt the returns that AI companies can generate, technology valuations could fall sharply. Because large technology companies represent such a significant share of global stock markets, a major repricing could affect financial conditions well beyond the technology sector.
Interest rates are no longer moving in one direction
At the start of 2026, financial markets were largely focused on when central banks would cut interest rates.
The picture has since become more complicated.
In the United States, the Federal Reserve's target range stood at 3.75% to 4.00% following its September 2026 meeting as inflation remained above target.
In the UK, the Bank of England held Bank Rate at 3.75% in September, with policymakers warning that higher energy prices could keep inflation elevated.
This matters for currency markets.
Higher expected interest rates can make a currency more attractive to international investors because assets denominated in that currency can offer higher yields. Expectations of lower rates can have the opposite effect.
As a result, changing expectations for the Federal Reserve, Bank of England and European Central Bank can produce significant movements in GBP/USD, GBP/EUR and other exchange rates even before central banks actually change policy.
Inflation remains a risk
Inflation has fallen substantially from the extreme levels seen earlier in the decade, but it has not disappeared as an economic risk.
Energy prices, conflicts, trade restrictions and supply disruptions can all push prices higher again.
The IMF now expects global headline inflation of around 4.7% in 2026 before a decline to 4.1% in 2027.
Persistent inflation creates a difficult trade-off for central banks. Keeping interest rates high can control prices but may weaken economic growth, while cutting rates too quickly can allow inflation to accelerate again.
Geopolitics can quickly change the outlook
Economic forecasts depend heavily on assumptions that can change unexpectedly.
Wars and geopolitical tensions can affect oil and gas prices, shipping routes and international trade. New tariffs or trade restrictions can increase costs for businesses and consumers.
Financial markets can therefore move rapidly when geopolitical events alter expectations for inflation, economic growth or central bank policy.
Currencies often react particularly quickly because foreign exchange markets continuously reflect changing expectations across different economies.
What does this mean for the pound?
For sterling, the relative performance of the UK economy matters as much as the UK's absolute performance.
If UK inflation remains higher than elsewhere, markets may expect the Bank of England to maintain higher interest rates for longer. That can support the pound, although persistent inflation can also damage economic growth.
The same relationship applies to the US dollar and euro.
Currency movements therefore depend not simply on whether an economy is doing well or badly, but on how its outlook compares with other countries and what investors expect central banks to do next.
The economic outlook is becoming more dependent on technology
One of the most important changes in the global economy is the increasing influence of AI investment.
Technology spending is now large enough to affect investment, electricity demand, international trade, semiconductor production and financial markets.
If AI produces the productivity improvements its supporters expect, it could support stronger economic growth for years.
If those expectations prove too optimistic, markets could face a significant correction.
For currencies and financial markets, the key factors to watch remain the same: economic growth, inflation, interest rates and investor confidence. But AI has now become another major variable in that equation.
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