Pound Sterling underperforms against its peers as Fed-BoE policy takes centre stage

The Pound Sterling (GBP) trades lower against its major currency peers, except the New Zealand Dollar (NZD), is down 0.27% to near 1.3280 during the European trading session on Tuesday. The British currency faces selling pressure amid uncertainty surrounding the Bank of England’s monetary policy announcement on Thursday.

Investors expect the BoE to leave interest rates unchanged at 3.75%, with a 7-2 majority, as conflicts in the Middle East, which involve the United States (US), Israel, and Iran, have prompted inflation expectations in the United Kingdom (UK) and the entire world.

Before the Iran conflicts, traders were confident that the BoE would cut interest rates by 25 basis points (bps) to 3.5%. Dovish BoE expectations were prompted by deteriorating job market conditions and signs of slowing inflationary pressures.

For fresh cues on the current state of the UK job market, investors will focus on the employment data for the three months ending January, which will be released on Thursday. According to estimates, the ILO Unemployment Rate remained steady at 5.2%, and Average Earnings Excluding Bonuses, a key measure of wage growth, cooled down to 4% Year-on-Year (YoY) from the previous reading of 4.2%.

Meanwhile, a slight recovery in the US Dollar after correcting on Monday has also weakened the GBP/USD pair. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% higher to near 100.00.

Going forward, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. Investors expect the Fed to leave interest rates unchanged in the current range of 3.50%-3.75%.