Market Analysis

Sterling reached its highest point in nearly two weeks against a weakening dollar and held steady against the euro on Wednesday ahead of significant U.S. inflation data.

The pound experienced a decline on Tuesday following remarks from Bank of England (BoE) chief economist Huw Pill, suggesting the possibility of interest rate cuts over the summer.

In other news, British wage growth surpassed expectations. However, there are indications that the labor market's inflationary pressures are easing, keeping the BoE vigilant regarding the timing of potential interest rate cuts.

Market expectations regarding future BoE rate cuts remained relatively stable, with a roughly 50% probability of a first move in June, while fully pricing in a 25 basis point rate cut in August and over 50 bps by the end of the year.

The dollar weakened to a one-month low against the euro on Wednesday amid declining Treasury yields as traders awaited a crucial U.S. inflation report that could influence Federal Reserve policy.

Sterling edged up 0.18% to $1.2610 after reaching $1.2616, its highest level since May 3.

According to Kit Juckes, foreign exchange strategist at SGCIB Bank, "Some modest pound weakness is expected from here, considering that the UK has more flexibility to cut rates than the European Central Bank (ECB), and interest rate movements are currently the primary driver of exchange rates. However, in the long term, rates approximately 150 bps higher than the euro zone's could not only limit the euro against the pound but also facilitate its decline."

Sterling inched up 0.01% against the euro to 85.90 pence per euro.

Paraphrasing text from "Reuters" all rights reserved by the original author.