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The British pound struggled to find clear direction on Monday against both the U.S. dollar and the euro, as investors remained cautious ahead of a crucial slate of UK economic data later this week that could determine the path of future interest rate cuts by the Bank of England.
Sterling was little changed against the dollar, last trading marginally lower at $1.3647, staying within a tight range that has prevailed in recent sessions. The pound was also broadly flat versus the euro, hovering around 86.96 pence.
Labour and inflation data in focus
Attention is firmly on upcoming labour market and inflation reports due on Tuesday and Wednesday, respectively. These releases are expected to play a decisive role in shaping expectations for monetary policy, particularly after the Bank of England kept its benchmark interest rate unchanged at 3.75% earlier this month in a narrow 5–4 vote.
While policymakers held rates steady, the central bank signaled that borrowing costs are likely to fall if a projected decline in inflation proves sustainable. Market expectations are now finely balanced, with investors looking to this week’s data for confirmation.
Consumer price inflation is forecast to slow to 3% year-on-year, which would mark the weakest pace of price growth since March last year. Meanwhile, the unemployment rate is expected to remain at its highest level since December 2020, underscoring signs of cooling in the UK labour market.
Futures markets are already close to fully pricing in two 25-basis-point rate cuts from the Bank of England over the course of this year, making the upcoming data particularly critical for validating or challenging those expectations.
Euro outlook and political backdrop
Against the euro, sterling could face additional pressure from diverging monetary policy expectations. The European Central Bank is widely expected to keep its deposit rate unchanged through 2026, a stance that could limit the pound’s upside versus the single currency if the BoE moves ahead with easing.
On the political front, recent uncertainty surrounding Prime Minister Keir Starmer’s leadership has eased for now. Starmer last week dismissed calls from within his party to step down following controversy over the appointment of Peter Mandelson as ambassador to Washington, pledging that he would not walk away from the role.
With political risks temporarily receding, markets are once again squarely focused on economic fundamentals, leaving sterling’s near-term direction highly dependent on whether this week’s data strengthens or weakens the case for further rate cuts.
