Sterling edged lower against the dollar and euro yesterday, holding off 10-day highs hit last week, as traders awaited key wages data due on Wednesday for clues to the pace of monetary tightening from the Bank of England.
Markets have moved to price in an interest rate hike in May, but such tightening will hinge on pay growth picking up, and on whether Prime Minister Theresa May can soon secure a transition deal for the two years after Britain quits the European Union.
The shift in market expectations followed a hawkish BoE meeting that said interest rates would need to rise sooner and by more than it had previously expected.
Investors have also become nervous about Brexit negotiations, after starting the year confident that Britain would secure a transitional deal. Sterling slumped earlier this month when the EU’s chief negotiator Michel Barnier said such a deal was “not a given”.