Sterling remained steady against the U.S. dollar on Friday after falling to its lowest level of the year, signaling a potential weekly decline as traders await critical UK economic indicators. Investors are closely monitoring upcoming gross domestic product (GDP) and jobs data, which are expected to provide clarity on the Bank of England’s (BoE) monetary policy trajectory.
Sterling Performance Against Major Currencies
The pound was flat at $1.3436, after dropping to a low not seen since December 31, 2025. This movement positions sterling for its second consecutive weekly decline against the dollar.
Against the euro, sterling steadied at €0.8668 (86.68 pence) but is still set for its fourth straight weekly loss, having fallen as low as 86.44 pence on Tuesday, its lowest since mid-September.
Key Economic Data on the Horizon
Traders are focusing on:
- UK GDP data, due Thursday
- Jobs data, including the upcoming Recruitment and Employment Confederation (REC)/KPMG report
- Wage growth and labor market trends
Jeremy Stretch, Chief International Strategist at CIBC Capital Markets, said:
“We remain mindful of immediate sterling downside risks should the upcoming KPMG/REC report indicate a continued labor market deceleration, particularly regarding wage pressures.”
Money markets are currently pricing in an 88% probability that the BoE will hold its policy rate at 3.75% during its February 5 meeting, following December’s 0.25% rate cut.
Factors Supporting Sterling
Despite recent declines, sterling has several supportive factors:
- The pound was one of the best-performing currencies in 2025, rising almost 8% against the U.S. dollar.
- Reduced fiscal and political risks since Finance Minister Rachel Reeves’ November budget presentation.
- Hints from the UK government of a closer alignment with the European single market, as stated by Prime Minister Keir Starmer, have added confidence to the currency.
These factors help mitigate downside risks, even as traders remain cautious ahead of key economic releases.
Market Outlook
Analysts predict sterling volatility will continue in the short term, driven by:
- Labour market trends and wage growth reports
- BoE interest rate decisions in February
- Ongoing geopolitical and trade developments with Europe
The pound’s performance will likely reflect investor sentiment toward UK economic recovery, balancing political stability with domestic and international economic conditions.
Key Takeaways
- Sterling steadied at $1.3436 but is poised for a weekly decline.
- Upcoming UK GDP and jobs data are critical for BoE policy signals.
- Sterling has been supported by reduced fiscal risks and hints of closer ties with Europe.
- Money markets expect the BoE to hold rates at 3.75% on February 5.
- The pound remains one of the strongest currencies of 2025, rising nearly 8% versus the dollar.
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