Sterling holds firm into UK GDP week as traders reassess Bank of England cut expectations

The British pound is holding up well this week as forex traders shift focus toward a key UK macro catalyst: upcoming GDP data. After months of heavy debate around when the Bank of England will begin easing policy more aggressively, the market is now reassessing the pace of rate cuts and whether the UK economy is slowing enough to justify a more dovish stance.

This matters because sterling has become one of the cleanest currencies to express interest rate expectations. When traders believe the Bank of England will stay restrictive for longer, the pound tends to strengthen, particularly against lower yielding currencies. When markets price quicker cuts, sterling usually softens as yield support fades. That is why UK GDP is important this week. It acts as a reality check for the narrative.

The pound’s resilience so far suggests that traders are no longer fully convinced that the UK is heading into a rapid easing cycle. Inflation pressure has been slower to fade than markets initially expected, and wage dynamics remain a key concern for policymakers. Even when headline inflation cools, the Bank of England tends to focus on whether services inflation and labor market tightness are easing. If those pressures persist, the central bank has less room to cut quickly without risking a second inflation wave.

UK GDP will feed directly into this debate. A weak growth signal would strengthen the argument that the economy needs support, pushing traders to price faster easing and pressuring sterling. A firmer GDP result would do the opposite, reinforcing the view that the economy is not collapsing and that the Bank of England can keep rates higher for longer. This would support the pound and could create stronger demand for sterling, especially if risk sentiment remains steady.

Another reason sterling is important this week is that it can influence broader European FX positioning. EURGBP often reacts sharply to any perceived shift in UK policy expectations versus the European Central Bank outlook. If sterling continues to hold firm, it can weigh on the euro relative to the pound and influence cross currency risk sentiment in European markets.

For traders, this is a classic macro positioning week. Many are holding back from aggressive directional bets, waiting for confirmation from GDP before committing. That creates a setup where a surprise in the data can trigger an outsized move, especially if positioning is already tilted in one direction.

In short, sterling is being supported because the market is questioning earlier assumptions about fast Bank of England easing. UK GDP this week will either validate that shift or reverse it quickly. That makes the pound one of the most sensitive major currencies on the calendar, with volatility likely to rise as traders reposition around the UK growth narrative.