Pound strengthens against dollar, steady on euro

Pound strengthens: The pound saw gains against the dollar on Tuesday, reaching $1.2658, up 0.17 per cent and extending gains from the previous day. This movement follows last week's central bank meetings, including the Bank of England's, and marks a recovery from a one-month low of $1.25755 reached after the BoE meeting.

The pound remained stable against the euro, with one euro worth 85.75 pence. Euro/sterling has traded within a narrow range recently, with low volatility.

Analysts at Monex Europe noted that the quiet data calendar is allowing traders to reassess last week's market moves, particularly the BoE's easing expectations. Current market pricing suggests a 65 per cent chance of the British central bank cutting rates by its June meeting, with a slight decline in expectations for a move in May.

Following the BoE's meeting last week, where it indicated a positive direction for inflation and interest rate cuts, markets have adjusted their expectations. They now anticipate a similar rate trajectory for the BoE, European Central Bank, and US Federal Reserve, with each potentially beginning monetary easing in June with a 25 basis point rate cut, followed by two further cuts this year.

Analysts suggest that if these expectations hold, the movements of the sterling and dollar, euro and sterling, and euro and dollar pairs are likely to remain relatively stable.

(with Reuters inputs)