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Sterling slightly retreated but maintained its position near a two-month high as UK wage growth data suggested a more cautious approach to interest rate cuts by the Bank of England (BoE), despite a sluggish economy, according to a Reuters report.
The pound was down 0.2% against the dollar at $1.25995, staying in proximity to the $1.2635 level reached on Monday, which marked its highest point since December 19.
The Office for National Statistics reported that British private-sector pay excluding bonuses, a key indicator of domestic inflation pressure for the BoE, increased by 6.2% from a year earlier, the quickest pace in a year.
Average weekly earnings, excluding bonuses, climbed by 5.9% in the final three months of 2024 compared to the same period the previous year, marking the third consecutive monthly rise in wage pressures.
Wage growth remaining significantly above the BoE’s 2% inflation target presents a challenge for the central bank, which has expressed a willingness to lower interest rates.
Analysts at Jefferies anticipate the BoE to maintain rates in March and expect the next rate cut to occur in May. Following the wage growth data, investors slightly reduced their expectations for rate cuts, factoring in 58 basis points of easing from the BoE this year.
BoE Governor Andrew Bailey commented on Tuesday that the latest labor market data aligns with the central bank’s overall economic forecasts. Market participants are now looking forward to Wednesday’s UK inflation data, which, according to Jefferies’ economist Modupe Adegbembo, will be "more instructive."
The pound has appreciated 1.6% against the dollar in February, as easing tariff concerns have weakened the greenback more broadly. Also capturing investor attention on Tuesday were talks in Riyadh between U.S. and Russian officials aimed at resolving the Ukraine conflict. British Prime Minister Keir Starmer emphasized on Monday the importance of increased defense spending across Europe.
Against the euro, the pound reached a two-week high on Tuesday before reversing those gains. The euro was last marginally higher against the pound, with one euro valued at 83.06 pence.
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