The pound shrugged off yet another set of disappointing economic data on Wednesday (3 August), gaining ground against the euro ahead of the highly-awaited Bank of England (BoE) meeting on Thursday.
By mid-afternoon, sterling was broadly flat against the dollar at $1.3352 and gained 0.23% against the euro to €1.1919. The gains came despite more bad news for the UK economy, as a survey released by IHS Markit showed activity in the services sector in July shrank at the fastest pace since March 2009.
Earlier this week, surveys showed the manufacturing industry contracted at the sharpest rate in three years, while output in Britain's construction sector tumbled to a seven-year low. The BoE surprised the markets last month, when it surprisingly opted to sit tight, but it is widely expected to bring the benchmark interest rate to an historic low of 0.25% tomorrow.
Colin Dewar, head of Hargreaves Lansdown currency dealing , believes the sharp economical downturn highlighted by this week's data "makes an interest rate cut from tomorrow's Bank of England meeting all but certain".
Elsewhere, the euro lost 0.29% against the dollar to $1.1192, while the latter climbed 0.20% against the yen ¥101.09.
Having reached a five-week low in the previous session, the Bloomberg Dollar Spot Index, which gauges the dollar against a basket of foreign currencies, gained ground against all its major peers on Wednesday. Kit Juckes, global head of FX strategy at Societe Generale, attributed the dollar's recent decline to investors betting the Federal Reserve will hold out until September 2017 before rising interest rates, amid global uncertainty and a still fragile domestic economy.
However, Juckes added the US labour figures due out on Wednesday and Friday would have a lot to say over the dollar's direction over the remainder of the week.
"Once upon a time the US market would have sold off a fair bit more and euro/dollar would have fallen but that world is long gone and would need much better US data or dramatically weaker European data to return," he said.
"The range looks set to hold and the direction for the rest of this week depends on the US labour market lottery."