Sterling inched down on Monday, ahead of a busy week of economic data that will set the tone for the Bank of England’s next meeting and the near-term fortunes for the British currency.
The pound was last down 0.1% against the dollar at $1.24005.
It reached a 10-month high of $1.2545 last Thursday, having been a major beneficiary of the dollar’s recent weakness due to market expectations that a peak in U.S. rates is looming, before suffering on Friday as the greenback staged a small comeback.
The British currency also softened a touch against the euro on Monday as the European common currency, briefly touched a three-week top of 86.63 pence, before trading steady on the day at 88.51 pence.
“It is a big week for UK data and what it means for the Bank of England’s policy decision on 11 May,” said Chris Turner, ING’s head of markets.
UK February jobs figures are due on Tuesday, which will include wage growth figures, and March inflation numbers are out on Wednesday.
Market pricing currently indicates around a 75% chance of a further Bank of England rate hike at its next meeting in May, but signs of slowing inflation or a struggling economy could cause those expectations to change and cause the pound to weaken.
“We suspect EUR/GBP could trade 0.89+ were the market this week to price out the chances of that May hike,” said Turner.
British economic data this year so far has been largely coming in better than the albeit low expectations.
Analysts at Rabobank said this improvement in sentiment lay behind speculators’ net short GBP positioning dropping to its lowest level since March 2022, according to CFTC data.
