Sterling Ticks Higher as Markets Weigh Rate Outlook

Sterling edged higher against both the dollar and the euro as investors turned their attention back to economic data and interest rate expectations, after a week dominated by geopolitical headlines. The pound traded slightly firmer as markets assessed a mixed set of UK indicators, including softer labour market figures and uneven inflation data. Analysts said the currency’s modest gains reflected a recalibration of expectations rather than a strong directional shift. With global trade tensions easing after comments from US President Donald Trump, traders in London appeared more willing to refocus on domestic fundamentals. Recent data showing weaker jobs growth has raised questions about the resilience of the UK economy, even as consumer prices rose more than expected late last year. The combination has left markets cautious, with sterling moving in narrow ranges as participants wait for clearer signals on growth and inflation trends.

Attention is now firmly on the outlook for monetary policy at the Bank of England, where policymakers are weighing signs of easing pressure in the labour market against lingering inflation risks. Economists said weaker employment figures could give the central bank more room to cut interest rates later this year, despite headline inflation remaining above target. Some analysts expect at least two rate cuts before year end, though others warn the pace of easing could be slower in the first half of the year if price pressures prove stubborn. The pound showed little reaction to the latest inflation report, suggesting markets had largely priced in the data. Against the euro, sterling remained relatively stable after recent volatility, as investors balanced expectations for UK rate cuts against policy paths in the euro zone and the United States.

Broader market sentiment has also been influenced by developments abroad, including a retreat from potential trade measures that had unsettled currencies earlier in the week. With geopolitical risks temporarily receding, currency traders are once again prioritising economic indicators and central bank guidance. Data showing lower than expected government borrowing in December offered some reassurance about the UK’s fiscal position, supporting the pound at the margin. However, strategists cautioned that sterling’s near term direction would depend heavily on upcoming data releases and signals from policymakers. Any further evidence of slowing growth could strengthen expectations of earlier rate cuts, potentially capping gains. For now, the currency’s gentle uptick reflects a market in wait and see mode, balancing domestic economic uncertainty against a calmer global backdrop and a renewed focus on the path of UK interest rates.