Sterling fell in European trade on Monday against euro away from three-month highs and on track for the first loss in five sessions on profit-taking.
Despite the decline, sterling is expected to rebound as the gap between UK and Euro zone treasury yields tilts in the pound's direction.
EUR/GBP
EUR/GBP rose 0.3% to 0.8585, with a session-low at 0.8553, after rising 0.8% on Friday, the fourth profit in a row, and the largest since February 2023, marking three-month highs at 0.8552.
Sterling rallied 1.4% against euro last week, marking the best weekly profit in 2023 as investments move readily in favor of the pound due to future prospects of interest rates.
In the UK, investors are reducing bets on early interest rate cuts by the Central Bank, with the opposite course in the euro zone.
Thus the government yield gap between the UK and euro zone rallied considerably in favor of the pound.
Recent Euro zone inflation data bolstered the case for an early interest rate cut by the European Central Bank in 2024, potentially in May.
Conversely, markets don't expect Bank of England to enact the first interest rate cut until later in the summer.
Several BOE officials recently asserted that interest rates will remain at the tight 5.25% level for an extended duration until inflation is reliably brought under control.