Sterling Holds Steady as Markets Await Key UK Inflation and Jobs Data

The British pound traded in a narrow range on Monday as investors awaited a series of economic releases that could influence the Bank of England’s next policy move. With labour market figures and inflation data due this week, currency markets showed little conviction, leaving sterling largely flat against both the dollar and the euro.

In afternoon trading, the pound hovered around 1.3647 against the US dollar, showing only marginal movement. Against the euro, sterling was similarly subdued, trading close to 86.96 pence. The muted performance reflects a wait and see approach among traders ahead of data that could shape expectations for interest rates over the coming months.

The Bank of England earlier this month held its main interest rate at 3.75 percent in a closely divided vote. Policymakers indicated that borrowing costs could be reduced later this year if inflation continues to ease in line with forecasts. Financial markets are currently pricing in two quarter point rate cuts before the end of the year, suggesting investors believe price pressures are gradually moderating.

Economists expect the upcoming inflation report to show consumer prices rising at an annual rate of around 3 percent, which would mark the slowest pace of growth since early last year. At the same time, the unemployment rate is forecast to remain at its highest level since late 2020, underscoring signs of cooling momentum in the labour market.

Currency strategists say the data will be crucial in determining whether the pound can break out of its recent range. Some analysts remain cautious about the domestic outlook. Concerns persist that weaker economic activity and softening employment conditions could weigh on sterling if the central bank moves more aggressively toward easing.

Comparisons with the euro area are also influencing sentiment. While the Bank of England is widely expected to cut rates, the European Central Bank is seen maintaining its current stance for longer. That divergence could limit the pound’s gains against the single currency in the months ahead.

Political developments have also played a role in shaping investor confidence. Recent internal tensions within the governing Labour Party appear to have eased, with Prime Minister Keir Starmer publicly dismissing speculation about his leadership. Although political uncertainty has quietened for now, analysts suggest that renewed instability could still trigger bouts of volatility in the currency.

For the moment, however, the focus remains firmly on economic fundamentals. Traders are positioning cautiously, mindful that unexpected shifts in inflation or employment data could quickly alter the interest rate outlook and prompt sharper moves in sterling.

As markets prepare for the week’s key releases, the pound’s direction will likely hinge on whether incoming figures reinforce expectations of gradual rate cuts or suggest that price pressures remain persistent.