The British pound posted a slight gain against the dollar and euro on Monday, but remained near multi-week lows against both currencies, as investors continued to focus on Bank of England policy and the UK's deteriorating fiscal outlook.
Sterling rose by 0.3% against the dollar to reach $1.3452, slightly above its eight-week low of $1.33655 recorded last week.
UK economic data last week was generally mixedwhile the labor market showed signs of further slowdown, consumer inflation unexpectedly rose to its highest level in over a year.
Despite that data, investors are still almost fully pricing in a quarter-point interest rate cut by the Bank of England at its upcoming meeting on August 7, with total expected cuts reaching 50 basis points by year-end.
Sterling also gained around 0.2% against the euro, reaching 86.575 pence per euro, after touching a 14-week low last week.
Currency strategists at Goldman Sachs wrote in a note: We believe the rise in the UKs fiscal risk premium is the main driver of the euros recent outperformance against the pound.
The UK remains in a fragile fiscal position, which worsened earlier this month after the government faced a major rebellion within its own party against welfare reform plans, raising doubts about its ability to reduce spending.
Many economists and analysts believe the government will be forced to raise taxes by billions of pounds later this year to comply with fiscal rules, especially amid slowing economic growth.
Jane Foley, Head of FX Strategy at Rabobank, said: Sterlings struggle to keep up with the euros performance this year reflects a shift in market optimism toward Germany and the eurozone.
Foley added: Given the UKs fiscal concerns, we continue to favor buying the euro against the pound on dips.
Meanwhile, Deloitte said on Monday that its consumer confidence index fell to its lowest level since Q1 2024, reflecting growing concerns about job security and income growth.
Retail sales data is due on Friday and may offer a clearer picture of consumer sentiment, while preliminary results of the purchasing managers index (PMI) survey on business activity are expected Thursday.
As for the US dollar, its index (which measures performance against a basket of major currencies) fell by 0.2% to 98.2 points as of 11:32 GMT, after reaching a high of 98.5 and a low of 98.1.