Pound struggles ahead of economic data

The pound was also little changed at 86.96 pence per euro

The British pound was struggling for direction against the dollar and the euro on Monday before key economic data due later this week that could make or break the case for more rate cuts from the Bank of England.

Labour market and inflation numbers, on Tuesday and Wednesday respectively, will be the highlight, as the recent political instability affecting Prime Minister Keir Starmer’s government has subsided for now.

Uncertainty surrounding the UK government has eased, but Starmer’s position is still seen as vulnerable, according to ING FX strategist Francesco Pesole.

Sterling was last down less than 0.1% against the dollar at $1.3647, within its recent narrow range.

The pound was also little changed at 86.96 pence per euro.

The BoE kept its main interest rate on hold at 3.75% earlier this month in a tight 5-4 vote, but it said borrowing costs were likely to fall if an expected drop in inflation were to be sustained.

Consumer prices are expected to have risen 3% from a year earlier, which would be the slowest pace of price growth since March last year. The unemployment rate is expected to hold at its highest level since December 2020.

We are going to keep an eye on the UK data this week, said Mohamad Al-Saraf, FX and fixed income associate at Danske Bank.

Generally speaking, we are quite negative on domestic factors in the UK with regard to the pound, he said.

Futures markets are almost fully pricing in two quarter-point rate cuts from the BoE this year.

Conversely, the European Central Bank is seen keeping its deposit rate on hold through 2026, which could weigh on the pound against the single currency.