By Stefano Rebaudo Feb 25 (Reuters) - Sterling edged up against the dollar and the euro on Wednesday, with investors keeping a close eye on interest-rate divergence and market sentiment. Investors
Sterling Inches Higher as Rate Divergence and Risk Sentiment Dominate
By Stefano Rebaudo
Sterling Moves, Policy Signals, and Market Drivers
Feb 25 (Reuters) - Sterling edged up against the dollar and the euro on Wednesday, with investors keeping a close eye on interest-rate divergence and market sentiment.
Nvidia Earnings Watch
Near-Term Market Drivers
Investors stayed on the sidelines ahead of Nvidia results due later in the session, while an uncertain UK political backdrop and the prospect of further Bank of England rate cuts left the near-term outlook for the pound unfavourable.
Risk Sentiment and Equities
The pound tends to behave as a risk-sensitive currency, with a strong correlation to global equities.
Services Price Inflation
BoE Policy Signals
BoE Governor Andrew Bailey said on Tuesday that a March rate cut was possible, although he noted that services price inflation had not eased as much as hoped in recent data.
February Vote and Outlook
The BoE turned more dovish in early February, when it held policy steady in a surprisingly tight 5–4 vote and said rates would likely fall if a decline in inflation continues.
EUR/GBP Update
FX Levels and Moves
Sterling was up 0.10% versus the euro at 87.17 pence. It hit 87.52 last week, its lowest since December 19.
GBP/USD Level
It was up 0.18% at $1.3511.
Upcoming DMO Plans
Gilt Yields and Issuance
Gilt yields are under scrutiny ahead of next week's bond issuance plans from the UK Debt Management Office, which will follow finance minister Rachel Reeves' updated growth and borrowing forecasts to parliament.
Recent Yield Lows
British 10-year yields rose two basis points on Wednesday after falling to their lowest since December 2024 at 4.29% on Tuesday.
OBR Compliance View
Fiscal Outlook and Risks
Dani Stoilova, UK and Europe economist at BNP Paribas, expects the Office for Budget Responsibility to confirm indirectly that the government remains compliant with fiscal rules.
Risks to Fiscal Path
"Risks around the fiscal trajectory have not dissipated though, particularly given the backdrop of elevated political uncertainty, and will need to be addressed in future budgets," she added.
Political Backdrop
Prime Minister Keir Starmer, who has faced calls to step down over his appointment of Peter Mandelson as UK ambassador to the U.S., faces further scrutiny after parliament ordered the release of documents relating to the vetting of Mandelson, who was later fired for his links to the late sex offender Jeffrey Epstein.
(reporting by Stefano Rebaudo. Editing by Mark Potter)
