Sterling slips as investors eye inflation report, data
Sterling weakened broadly on Monday, with investors waiting to see if widespread expectations of further interest rate cuts this year are backed by a heavy slew of UK economic indicators over the next few days.
Following a UK interest rate cut last week, producer and consumer price inflation, employment and earnings data and the keenly-awaited Bank of England quarterly inflation report on Wednesday will give the market plenty to chew on this week.
"The main focus will be the Inflation Report rather than the data," said Paul Robson, currency strategist at RBS Global Banking.
Short sterling rate futures price in 75 basis points of further easing by the end of the third quarter, and a full 100 basis points by the end of the year.
"We continue to believe people are a bit too aggressive on UK rates. If the data deteriorates we'll revise our outlook ... but inflationary pressures are too strong (right now). The inflation report won't be as dovish as people expect," he said.
At 0900 GMT, sterling was down 0.1 percent on the day against the dollar at $1.9435, and was down 0.7 percent against the yen at 207.45 yen.
The euro was up half a percent at 74.90 pence, and the trade-weighted pound was down 0.4 percent at 95.70.
Last week, the BoE's Monetary Policy Committee cut rates a quarter point to 5.25 percent, the second such move in recent months.
Investors expect a weaker housing market, slower consumer spending, tighter credit market conditions and slowing growth overseas to prompt further rate cuts in the months ahead.
But high energy, commodity and food prices are stoking inflationary pressures, which may cool the Bank's enthusiasm for easing policy too aggressively.
Producer price data for January at 0930 GMT are not expected to clarify the inflation picture much.
December trade figures will also be released at 0930 GMT.
Sourced by Reuters.