Sterling was lower against the dollar on Tuesday as market focus stayed on developments in the Middle East, while traders await a closely-watched UK inflation print due on Wednesday and a Bank of England (BoE) interest rate decision due on Thursday.
The pound was a fraction lower on the dollar at $1.3527 and also softer against the euro at 85.27 pence to the common currency.
In UK news, US President Donald Trump on Monday signed an agreement formally lowering some tariffs on imports from Britain as the countries continue working toward a formal trade deal.
The deal reaffirmed quotas and tariff rates on British automobiles and eliminated tariffs on the U.K. aerospace sector, but the issue of steel and aluminium remains unresolved.
“I don’t think the trade deal will change anything, the 10 per cent tariffs remain in place and they only looked at traded goods that are not traded that much between the countries,” said Michael Pfister, FX analyst at Commerzbank.
The pound is up 8.5 per cent versus the dollar so far this year, but 3 per cent lower versus the euro.
Pfister said weaker-than-expected economic data has weighed on euro/sterling since the beginning of June.
Since then sterling is down about 1 per cent, despite the UK being the only country to strike a trade deal with the US
Wednesday will see the latest UK inflation figures for May hit the wire.
“UK inflation is expected to fall ever so slightly in May to 3.4 per cent, a minor but welcome move in the right direction,” Michael Field, chief equity strategist at Morningstar.
He said current elevated inflation levels are likely to be transitory, with the US-UK trade deal also expected to mitigate risk.
Money markets expect the BoE to hold rates steady at 4.25 per cent on Thursday and see about two more 25 bps rate cuts by December.
