LONDON (Reuters) -The British pound edged higher against the dollar and euro on Monday, but remained close to the multi-week lows it reached against both currencies last week as investor attention remains on Bank of England policy and the deteriorating fiscal picture.
The pound was up 0.3% against the dollar at $1.3452, just above last week’s eight-week low of $1.33655.
Britain’s economic data was mixed on balance last week – the labour market showed signs of a further cooling, while consumer price inflation unexpectedly rose to its highest in more than a year.
A quarter-point rate cut from the Bank of England at its meeting on August 7 remained almost fully priced after the data, with about 50 basis points of easing priced in by the end of the year.
The pound was also up about 0.2% at 86.575 pence per euro, having touched a 14-week low last week.
“We think a rising fiscal risk premium is the main driver of the recent outperformance of EUR/GBP,” said Goldman Sachs FX strategists in a note.
Britain remains in a precarious fiscal position, exacerbated earlier this month after the government suffered a major rebellion against welfare reforms which fed doubts about its ability to cut spending.
Many economists and analysts believe the government will have to raise billions of pounds in taxes later this year to meet its fiscal rules as growth remains elusive.
“The pound’s struggle to keep pace with the euro this year reflects a shift in market optimism in favour of Germany and the euro zone,” said Rabobank senior FX strategist Jane Foley.
“In view of the UK’s fiscal concerns, we continue to favour buying EUR/GBP on dips,” Foley added.
Deloitte on Monday said its consumer confidence index dropped to its lowest since the first quarter of 2024, reflecting increased worries about job security and income growth.
Retail sales data due on Friday could give a clearer picture on the state of the consumer, while a preliminary survey of purchasing managers on business activity is set for release on Thursday.
(Reporting by Samuel Indyk; Editing by David Holmes)
