Sterling dropped against the dollar and euro on Monday, holding off its 10-day highs hit last week. This is because traders awaited key wages data that are due later this week for clues to the pace of monetary tightening from the Bank of England.
Markets have made some moves to lock on to an interest rate hike in May, but that kind of tightening will pivot towards pay growth picking up, and on whether the Prime Minister Theresa May is able to soon secure a transition deal for the two years after Britain breaks away from the European Union.
The changes in the expectations of the markets followed a hawkish BoE meeting which stated that interest rates would need to rise sooner and by more than previously expected, in order to get inflation back on target within two years rather than three.
However, analysts made a statement that said a flat labour market report on Wednesday could dampen those expectations. It would also spins concern for the BoE, which has predicted that the wage growth for 2018 will accelerate.
Investors have become cautious out of nervousness about Brexit negotiations, after starting the year confident that Britain would be able to secure a transitional deal. The British Pound has dropped earlier this month when the EU’s chief negotiator Michel Barnier said such a deal was “not a given”.
Sterling went down 0.2 percent at $1.3998 GBP=D3, just down 2 percent from its 18-month high hit in late January. Against the euro it went down to 88.59 pence per euro.