By James Caley
Sterling struggled again last week as markets reacted to a cautious Bank of England and growing concern over the UK’s weak economic outlook. The Bank held interest rates at 4%, but a narrow vote and hints from Governor Bailey that inflation has likely peaked pushed traders to price in a possible rate cut before year-end. That shift in expectations saw the pound slip further against both the euro and the US dollar, with GBP/EUR hitting fresh multi-week lows.
Weak domestic data has done little to change sentiment. Consumer spending remains muted, confidence is fragile, and the housing market continues to soften. With fiscal tightening expected later this month, investors fear that any renewed squeeze on households and businesses could further undermine growth. Together, this combination of weak data, dovish central bank signals, and uncertainty over the broader economic outlook has left sterling on the defensive.
The focus now turns to this week’s key releases. Wednesday’s preliminary UK GDP figure will be the main event: a stronger reading could offer the pound some temporary relief, while any sign of stagnation would reinforce expectations for a rate cut and drive GBP/EUR and GBP/USD lower. Labour market and wage data due the same week will also be important in shaping sentiment, with softer figures likely to add to the pressure.
Across the Channel, eurozone GDP and industrial output figures could influence EUR direction, while in the US, inflation and employment data will drive broader dollar moves. If US data remains strong, GBP/USD and EUR/USD could face further downside; weaker US numbers would bring some respite.
For now, caution is warranted. With sterling sentiment fragile and growth concerns building, it may be wise to keep a close eye on this week and next week’s data. A stronger GDP print or softer US inflation could spark a short-term recovery, but the balance of risk still arguably leans towards further pound weakness in the near term.