Pound Sterling awaits direction from the Bank of England interest rate decision

The Pound commenced the week at a disadvantage as risk-averse market movements hindered the momentum of the Sterling, which is sensitive to changes in risk sentiment.

The Pound extended its decline on Tuesday as the UK's most recent jobs report fell short of expectations, showing an increase in unemployment and a slowdown in wage growth.

Consequently, expectations of an imminent interest rate cut from the Bank of England gained traction, exerting further pressure on GBP exchange rates. Entering Wednesday, the most recent UK GDP figures were unveiled, affirming a rebound in the UK economy in January, climbing from -0.1% to 0.2%.

After the release, the Pound was uplifted by a brighter economic forecast, with some economists suggesting that the UK's mild recession in the latter half of 2023 might have concluded even before fully materializing.

Nevertheless, as economists delved deeper into the latest data, the initial strength of the headline figure faded, triggering deeper concerns regarding the overall well-being of the UK economy, which dampened Sterling's performance on Wednesday.

GBP exchange rates remained stagnant throughout the week's end, confined within a narrow range, as the absence of significant economic data releases combined with a fluctuating market sentiment left the Pound without a clear direction.

Looking forward, the main catalyst influencing movement in the Pound exchange rate this week is expected to be the upcoming interest rate decisions from the Bank of England, set to be announced on Thursday.

The central bank are anticipated to maintain interest rates unchanged, investors in GBP and other currencies will probably focus on the accompanying commentary for direction.

Should the Bank of England deliver dovish remarks, it could inject volatility into GBP exchange rates during the midweek period.

Prior to that, the UK's forthcoming inflation data is set for publication. Considering recent forecasts by the Office for Budget Responsibility indicating a decline in UK inflation to 2% in the second quarter of 2024, any indication that the rate of inflation cooling is accelerating could lead to a weakening of the GBP.

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