Pound Slips Ahead of Key BoE Testimony as Markets Weigh Odds of March Rate Cut

The British pound edged lower on Tuesday as investors turned cautious ahead of parliamentary testimony from four Bank of England policymakers, with markets closely watching for clues on whether interest rates could be cut as early as March.

Sterling traded at $1.3491 against the U.S. dollar at 11:36 GMT, down marginally by 0.02%. Against the euro, the pound weakened slightly, with EUR/GBP easing 0.07% to 0.8732.

The spotlight, however, is on Governor Andrew Bailey, whose comments could prove pivotal for market expectations. If Bailey suggests that economic conditions now justify a rate cut in March, money markets could move to fully price in the move.

At present, markets are assigning an 80% probability to a 25-basis-point rate cut next month. ING noted that a more dovish signal from Bailey could even prompt speculation of more than 50 basis points of easing over the course of this year.

Overall, the pound’s modest decline reflects a cautious wait-and-see approach, with traders reluctant to take strong positions ahead of potentially market-moving signals from the Bank of England’s leadership.