Sterling steadied on Thursday against the U.S. dollar and euro after two days of sharp depreciation, though volatility is expected to continue ahead of next week’s Bank of England (BoE) monetary policy meeting.

The pound was last trading at $1.3182, slightly above Wednesday’s intraday low of $1.3142, marking its weakest level against the dollar in over five months. Against the euro, sterling held at 88.1 pence per euro, just shy of the softest level since May 2023.

Drivers Behind Sterling’s Recent Weakness

Traders and analysts have been digesting a series of economic data releases, including softer-than-expected inflation figures, which have fueled speculation over the BoE’s next moves. The pound’s decline reflects uncertainty about potential interest rate cuts, fiscal policy adjustments, and broader market positioning.

• Interest Rate Speculation: Goldman Sachs recently adjusted its BoE forecast, now expecting a rate cut in the upcoming meeting. Current market pricing suggests roughly a one-in-three chance of a 25 basis point cut, keeping sterling vulnerable to either upward or downward moves depending on the BoE’s decision.
• Fiscal Policy Considerations: Investors are also weighing rumors about tax increases and spending cuts in Chancellor Rachel Reeves’ late November budget. Increased fiscal tightening could prompt the BoE to lower rates more aggressively, adding pressure on sterling.
• Market Technicals and Month-End Flows: Analysts at Bank of America (BofA) noted that month-end portfolio rebalancing by asset managers and breaches of key technical support levels in sterling crosses have added short-term volatility.

Multi-Year Lows Across Other Currencies

Sterling’s weakness has not been limited to the dollar and euro. On Wednesday, the pound fell to multi-year lows against the Swiss franc, Swedish krona, and Norwegian krone, highlighting broad-based pressure on the British currency.

BofA analysts suggest that while keeping rates on hold next month could provide some support for sterling, ongoing budget-related news-flow and a rising risk premium may act as headwinds to a sustained recovery.

Outlook

With the BoE meeting approaching, market participants will closely monitor UK economic data, fiscal policy updates, and central bank guidance. Sterling is likely to remain choppy and sensitive to new developments, with potential swings in either direction depending on how policymakers balance inflation, growth, and fiscal pressures.