Sterling inched higher against both the euro and the U.S. dollar as a run of mixed economic data brought the interest-rate outlook at the Bank of England back into focus.
Market attention returned to domestic fundamentals after geopolitics dominated earlier in the week, with fears of a potential U.S.–Europe trade conflict unsettling investors.
The pound was last trading at $1.3414, up 0.12%, having shown little immediate reaction to Wednesday’s inflation figures.
The U.S. dollar held on to gains made overnight after President Donald Trump stepped back from a threat to impose tariffs on several European NATO members in a dispute linked to Greenland.
Earlier in the week, data pointed to a weakening UK labour market, a development that could ease concerns at the Bank of England over persistent inflation pressures.
“Despite the recent uptick in the consumer price index, we still expect Bank Rate to move lower,” said Sanjay Raja, chief UK economist at Deutsche Bank, adding that the bank continues to forecast two additional rate cuts.
“However, the risks are skewed towards a slower pace of easing in the first half of 2026,” he added.
Sterling was largely unchanged on Wednesday after data showed UK inflation rose more sharply than expected in December.
“UK employment data for November and December was weak, confirming a slowdown in the labour market, while December’s inflation data was mixed but broadly on the cooler side,” said Felix Vezina Poirier, chief strategist at BCA Research.
He added that further interest rate cuts from the Bank of England are likely, noting that markets have priced in barely two 25-basis-point cuts by year-end, and that continued weak data could bring an April cut into sharper focus.