The BoE looks on course for its first rate rise this year, with markets pricing in a half percentage point increase to 4% on Thursday. Sterling edged 0.14% lower against the U.S. dollar at $1.2380, trading not far from a seven-month high of $1.2381 touched last week.
Simon Harvey, head of FX Analysis at Monex, said sterling performance has been largely uneventful but that it is not any indication on how the currency will be trading this week.
"Not only do GBP traders have to face up to fresh interest rate decisions from major central banks including the BoE, but it will also have to trade amid a volatile cross-asset risk environment as markets are set to receive the first official gauge of how China’s reopening is playing out," he said.
Monex sees higher risks towards a lower terminal rate than markets are pricing, "but this isn’t necessarily GBP negative", Harvey said.
Markets are currently pricing in an 80% chance of a BoE 50 basis point hike. Sterling fell 0.4% against the euro to 88.00 pence on the back of higher inflation in Spain bolstering expectations for the European Central Bank, which is also expected to hike interest rates by half a percentage point on Thursday.
POLITICAL SCANDAL Sterling has risen 2.4% against the dollar this months after recording last year its biggest annual drop since the Brexit referendum in 2016. Following a chaotic 2022 that saw three different British prime ministers, British Prime Minister Rishi Sunak said on Monday he would do whatever was necessary to "restore integrity" when asked about the sacking of Conservative Party chair Nadhim Zahawi.
In the latest scandal to hit one of Sunak's top ministers, an investigation found Zahawi committed a serious breach by not being open about a tax probe.
Sunak also said Britain should not put taxes up any further in response to a question about public sector pay. British finance minister Jeremy Hunt promised on Friday to tackle the country's weak productivity with post-Brexit reforms to boost growth. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2022 Graphic: Trade-weighted sterling since Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Joice Alves)
