Sterling tumbled in European trade on Wednesday to two-week lows against the dollar, resuming losses after a two-day hiatus as inflation slowed down in February, boosting the odds of a May Bank of England interest rate cut.

Now investors await the reveal of the UK government budget for 2025, which could include fiscal stimulus to support higher consumption, in turn boosting both growth and inflation.

The Price

The GBP/USD pair fell 0.45% today to $1.2886, the lowest since March 11, with a session-high at $1.2949.

The pound rose 0.1% on Tuesday against the dollar, as the risk appetite rebounded in the markets.

UK Inflation

UK consumer prices rose 2.8% y/y in February, below estimates of 3.0%, and down from 3% in the previous reading.

Core prices rose 3.5%, below estimates of a 3.6% rise, and down from 3.7% in the previous reading.

The data shows that inflationary pressures are reducing on BOE policymakers, which is a welcome economic sign.

UK Rates

Following the data, the odds of a BOE 0.25% interest rate cut in May surged to 80%.

Later today, the UK finance minister Rachel Reeves is scheduled to reveal the details of the government budget for 2025, which would include the levels of expected spending, income, borrowing, and financial targets and investments.

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