Fears of a looming UK recession saw Sterling start the week on the back foot, with a confirmed contraction in British factory activity adding to investor angst.
The pound then began to catch some bids. An improving market mood lifted the currency, while news that food inflation was easing seemed to soothe fears around the cost-of-living crisis.
As the week went on, GBP gathered strength. The pound shrugged off concerns that tightening monetary policy would trigger a UK recession, as expectations of more Bank of England interest rate rises boosted Sterling demand.
Markets are pricing in the possibility of a 50bps hike at the BoE’s next meeting, and this helped the pound strengthen through the second part of last week’s session.
Sterling has trimmed its gains so far this week as an absence of data leaves the currency lacking support.
High-impact data releases through the rest of the week could drive significant movement in GBP, kicking off with Tuesday’s labour market overview. Strong wage growth and low unemployment could boost BoE bets, which may lift the pound.
However, a forecast 0.4% contraction in UK GDP in May – due out on Thursday – could see Sterling slump towards the end of the week.
