Sterling ticks higher as focus stays on global rate outlook

Sterling ticked higher against a softer dollar and euro on Thursday, although traders were still focused on the global backdrop after expectations rose this week for bigger interest rate hikes from the U.S Federal Reserve. That’s one of the reasons sterling is a bit lower against the dollar (this week)," said Turner.

Sterling ticked higher against a softer dollar and euro on Thursday, although traders were still focused on the global backdrop after expectations rose this week for bigger interest rate hikes from the U.S Federal Reserve. By 1158 GMT, the pound was up 0.42% against the dollar at $1.1887 and 0.1% higher against the euro at 88.892 pence. Nevertheless, the pound is down 1.3% against the dollar for the week as rate-hike expectations from the Fed have ticked up.

"It has been a big week for the dollar and U.S. interest rates, that is the dominant story this week. We had Powell's testimony on Tuesday and Wednesday and U.S. jobs data tomorrow," ING strategist Chris Turner said. Looking at the UK, Turner pointed to key data in the coming weeks before the Bank of England convenes on March 23 for its next policy meeting.

UK employment and wage data will be published on March 14. Next week will also see British finance minister Jeremy Hunt announce his new budget. "There have been signs in the Bank of England's Decision Maker Panel'…that tightness in the labour market is easing," said Turner.

"Any sign of further easing in either wages or CPI numbers number would be a negative event risk for sterling - and vice versa," said Turner. The market is pricing in a 91% chance of a 25-basis point rate hike when the BoE meets on March 23 for its next policy meeting, with an outside chance of no change.

"They haven't quite kept up pace with what's happening on the other side of the Atlantic. That's one of the reasons sterling is a bit lower against the dollar (this week)," said Turner. Next week's British budget will include closely watched growth forecasts for hints over the outlook for the UK economy.

On Wednesday, the British Chambers of Commerce forecast that the country's economy is on track to shrink less than expected this year and avoid two consecutive quarters of contraction, the technical definition of a recession.