Sterling Steadies After High Jump Amid Rate Cut Speculations

Sterling stabilized against the dollar on Monday after its significant weekly surge as markets adjusted expectations for an August rate cut from the Bank of England. Traders are now focused on upcoming UK inflation data, which could influence the timing of the BoE’s decision on interest rates.

Sterling stabilized against the dollar on Monday following its largest weekly jump since May, as market speculations about an August rate cut from the Bank of England cooled off.

Traders are now turning their attention to UK inflation data set to be released on Wednesday, seeking further insights into the BoE's interest rate policy. The pound fell by 0.1% against the dollar to $1.2979, having risen 1.4% last week due to positive growth data and statements from BoE policymakers.

BoE Chief Economist Huw Pill indicated that the timing of the first interest rate cut remains uncertain. Money market traders have priced in approximately 12.5 basis points (bps) of easing by the August meeting, reflecting a 50% chance of a quarter-point cut next month. The futures market assigns a 90% probability to a 25 bp move by September.

Rabobank senior FX strategist Jane Foley noted that inflation data could be pivotal in determining whether the BoE will cut rates in August. The UK's Office for National Statistics is scheduled to release its consumer price data on Wednesday, with economists projecting that annual headline inflation will remain steady at 2%.

ING FX strategist Francesco Pesole remarked that the June CPI report on Wednesday could shift expectations for a Bank of England rate cut on August 1. He added that, given the absence of additional BoE speakers before the meeting, a major shift in momentum for the pound is unlikely unless there's an unexpected drop in CPI data.

At the same time, the pound was down less than 0.1% against the euro at 84.08 pence.

(With inputs from agencies.)