The pound steadied on Wednesday ahead of the Bank of England’s policy decision, with markets widely expecting a quarter-point cut to 4% — the fifth in the current cycle. Some policymakers may push to keep rates unchanged, as inflation remains well above the 2% target.
Sterling edged up 0.1% to $1.3308, about 0.5% stronger than a week ago, though it slipped 0.2% against the euro to 87.2 pence. The currency has lost momentum in recent weeks, with year-to-date gains easing to 6.5% from nearly 10% last month, as the UK grapples with high inflation, weak growth and a fragile fiscal position.
Monex strategists said the MPC is likely to emphasize a “gradual and careful” approach, limiting market reaction. However, a dovish surprise or signals that autumn budget tax hikes could hit growth may pressure the pound.
Options data shows traders are slightly less bearish, with reduced demand for selling sterling, reflecting expectations of a cautious BoE stance amid inflation at 3.6% and unemployment at 4.7%, according to Convera’s George Vessey.
Fresh data showed UK construction activity fell sharply in July, with S&P Global’s PMI dropping to 44.3 from 48.8 — the steepest decline since May 2020.
