Sterling hovers at eight-week low

The British pound traded around $1.339 on Thursday, hovering near an eight-week low, largely pressured by renewed strength in the US dollar.

The greenback climbed to a three-week high following comments from former President Donald Trump, who stated he had no intention of firing Federal Reserve Chair Jerome Powell, despite his criticism of the Fed’s cautious approach to cutting interest rates. The remarks offered reassurance to markets concerned about potential political interference with the central bank, reinforcing support for the dollar.

Meanwhile, UK markets are grappling with a mixed batch of economic data, adding to the uncertainty surrounding the Bank of England's monetary policy outlook. The labour market continues to show signs of cooling, with payroll employment declining for another month.

However, revised tax data suggests that the downturn in job growth may be less pronounced than previously reported. The unemployment rate rose to 4.7%, marking its highest level since late 2021, and pointing to a gradual loosening in labour market conditions.

Wage growth, while still elevated by historical standards, is beginning to lose momentum—a development that could give the BoE room to ease policy if the trend continues. Yet complicating the picture was an unexpected jump in inflation. Consumer prices rose 3.6% in June, exceeding forecasts of 3.4%, and suggesting that inflationary pressures may prove more persistent than hoped.

The surprise uptick was driven in part by higher housing costs and resilient core services inflation.

The combination of easing wage pressures and sticky inflation leaves the BoE in a difficult position. While the labour data supports arguments for eventual rate cuts to support growth, the inflation print could delay such moves. As a result, traders have modestly pared back expectations for aggressive easing but continue to price in two interest rate cuts by the end of 2025, reflecting a cautious, data-dependent outlook from the central bank.