Sterling Slips Amid Grim Economic Data

Sterling lost value against the dollar due to bleak economic data from the UK and dropped against the euro after Germany's potential debt deal boosted the euro. Despite unexpected GDP contraction, analysts don't foresee a dovish stance from the Bank of England. The euro gained 0.5% on the pound.

Sterling lost some ground against the dollar on Friday following a gloomy economic report from the UK, while the euro gained strength amid positive news of a potential German debt deal. The British pound fell as much as 0.25% to $1.2918 but managed to recover slightly to $1.2943, remaining close to its four-month high of $1.2990 seen on Wednesday.

Unexpectedly, the British GDP contracted by 0.1% in January, in contrast to economists' predictions of a 0.1% expansion. Analysts believe the weak data won't prompt the Bank of England to adopt a dovish policy on interest rates. Meanwhile, public inflation expectations have risen to a five-year high, reflecting caution in monetary policy adjustments.

In contrast, the euro surged by 0.5% against the pound with German Chancellor-in-waiting Friedrich Merz reaching a significant agreement on increased state borrowing for Germany. The pound has been regarded as a safe haven due to the balanced trading relationship with the U.S. compared to the EU, despite global trade tensions.

(With inputs from agencies.)