"The risk-correlated currency continues to swing with global investor sentiment," George Vessey, FX & macro strategist at Convera, said.
"The rebound in risk appetite this morning has seen equities rally across the board along with the highly correlated British pound." World stocks were higher on Tuesday, with European markets broadly firmer and Wall Street futures pointing to a positive open, as traders bet that interest rates will soon peak and come down later this year. The Bank of England is not scheduled to hold a policy meeting until next month, but Governor Andrew Bailey is scheduled to speak on Wednesday and could give clues on the future path for monetary policy.
"Chief economist Huw Pill had a speech last week that was more on the hawkish side but Bailey, as governor, is likely to take a more cautious approach and won't want to pre-commit to any action," Danske Bank FX analyst Kirstine Kundby-Nielsen said.
"Given the very large surprise we saw in inflation last time, we still think the Bank of England will hike by 25 basis points in May," she added.
Traders price in around a 75% chance of a 25 basis point hike in May, with around a 25% chance the central bank keeps rates unchanged.
The pound was broadly flat against the euro with the single currency buying 87.72 pence.
"The euro area and Britain's economies are being hit by the same forces. Inflation is not coming down sufficiently and they're both energy importers," Danske Bank's Kundby-Nielsen said.
"Euro-sterling (EUR/GBP) should stay rangebound given that we don't really see diverging factors in monetary policy and the growth outlook." Meanwhile, British retailers reported a boost in spending from Mother's Day purchases in March, during an otherwise downbeat sales period when cost of living pressures and unusually wet weather kept shoppers at home. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2023 Graphic: Trade-weighted sterling since Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Samuel Indyk; editing by Barbara Lewis)
