Sterling's Resurgence Amid Central Bank Moves

On Monday, sterling seemed set to end its three-session losing streak against the euro, as investors eagerly anticipate a week filled with central bank policy decisions. Recent UK inflation data has influenced market expectations, increasing the likelihood of Bank of England rate cuts.

After a volatile week, 2-year gilt yields saw minor fluctuations, staying relatively stable at 3.80% as of Monday. Meanwhile, the euro experienced a slight drop, fueling speculation that the European Central Bank will maintain its deposit facility rate at 2% well into 2027, with minimal chances of a rate cut before 2026.

As fiscal considerations predominantly drive the pound's outlook, British finance minister Rachel Reeves is expected to announce significant tax increases in her upcoming budget to maintain fiscal targets. This fiscal environment, combined with the BoE's divided stance on monetary policy, continues to influence sterling's trajectory.