Sterling backs off two-month high before UK data

The British pound fell in European trading on Tuesday against a basket of global currencies, pulling back from a two-month high against the US dollar, amid relatively active correction and profit-taking, alongside investor reluctance to build new long positions ahead of key UK economic data.

These data are expected to play a decisive role in shaping the Bank of England’s policy decision later this week, with current expectations pointing to a 25-basis-point cut in UK interest rates to a 3.75% range, the lowest level since December 2022, marking the fourth monetary easing step this year.

Price Overview

British pound price today: The pound slipped more than 0.1% against the dollar to $1.3362, from an opening level of $1.3377, after recording an intraday high of $1.3384.

On Monday, the pound posted gains of less than 0.1% against the dollar, resuming its upward move that had paused on Friday due to correction and profit-taking from a two-month high at $1.3438.

UK Interest Rates

Market pricing for a 25-basis-point rate cut by the Bank of England at this week’s meeting remains steady above 90%.

The Bank of England meets on Thursday to discuss appropriate monetary policy in light of recent economic developments in the UK, particularly as concerns over financial stability have eased following the announcement of a relatively moderate autumn budget.

Voting results from the Bank of England’s November meeting, when rates were held unchanged, showed a growing inclination among policymakers toward delivering a fourth easing move this year.

Updated policy guidance and comments from the Bank of England governor are expected to provide strong signals regarding the path of UK interest rates in 2026.

Key Data

To reassess the above expectations, investors are closely watching the release of highly important UK economic data throughout the day, including labor market indicators, alongside other readings covering the performance of key sectors of the economy.

Outlook for the British Pound

At Economies.com, we expect that if UK data come in less hawkish than markets anticipate, expectations for a UK rate cut this week will increase further, adding more downside pressure on the British pound against a basket of global currencies.