Sterling steady on Wednesday, markets await rate cut

The pound sterling traded largely unchanged on Wednesday as markets awaited the Bank of England’s upcoming policy decision and monitored developments in the United States, where President Donald Trump is reportedly looking to reshape the Federal Reserve board.

The Bank of England is expected to cut its benchmark interest rate to 4 per cent from 4.25 per cent on Thursday, marking the fifth cut in the current cycle. However, with inflation still running well above the BoE’s 2 per cent target, some members of the Monetary Policy Committee may vote to keep rates unchanged.

Sterling edged up 0.1 per cent against the dollar to $1.3308, trading about 0.5 per cent higher than last week. Against the euro, however, the pound weakened, with the single currency rising 0.2 per cent to 87.2 pence.

Despite showing a year-to-date gain of 6.5 per cent, sterling has lost momentum in recent weeks, down from a peak of nearly 10 per cent last month, as the UK economy continues to grapple with elevated inflation, weak growth, and fiscal uncertainty.

Monex analysts said the BoE was likely to deliver “cautious messaging” and stick with a “gradual and careful” approach, which they believe should have little immediate impact on the currency.

However, they warned that any dovish surprise or signs that planned tax hikes in the autumn budget might slow growth could spark a sell-off.

Attribution: Reuters
Subediting: M. S. Salama