Sterling edged higher against the US dollar on Thursday, as investors remained cautious ahead of a key interest rate decision from the Bank of England later in the session.
The British currency rose modestly, reflecting subdued trading activity as market participants largely stayed on the sidelines.
The cautious tone prevailed amid uncertainty over the central bank’s policy direction and broader global developments.
Dollar eases after recent highs amid geopolitical concerns
The US dollar slipped slightly after reaching a fresh multi-week high.
The earlier gains in the greenback were driven by rising concerns over a potential escalation in the Middle East, which pushed oil prices higher.
At the same time, the Federal Reserve provided no indication of a shift towards easing monetary policy.
This lack of dovish signals helped underpin the dollar’s strength in recent sessions, even as it softened marginally on Thursday.
Pound holds steady against euro, gains slightly versus dollar
The British pound was last seen trading 0.1% higher against the dollar at $1.3488.
Against the euro, however, it remained broadly unchanged at 86.63 pence.
The muted movement reflects a wait-and-watch approach among investors, who are holding back from taking large positions ahead of the BoE’s policy announcement.
Markets expect rates on hold despite uncertainty
Financial markets widely expect the Bank of England to leave interest rates unchanged in its upcoming decision.
However, uncertainty around the economic outlook remains elevated.
Money markets are currently pricing in roughly two rate hikes by the end of the year, even as policymakers have signalled caution regarding further tightening.
BoE Governor Andrew Bailey said in March that financial markets were moving too quickly in anticipating interest rate increases.
A month later, he reiterated that the central bank was “not going to rush to judgements” on tightening policy.
Economists see limited scope for rate hikes
Kallum Pickering, chief economist and deputy head of research at Peel Hunt, said, “We continue to expect the BoE to hold rates steady through the summer before cutting in late 2026 once price pressures subside,” as reported by Reuters.
Pickering also noted that a unanimous 9-0 vote in favour of holding rates, similar to March, would be interpreted as a dovish surprise by markets.
Voting split and forecasts in focus
Analysts at Bank of America expect a 7-2 vote in favour of keeping rates unchanged, with two policymakers potentially voting for a hike.
Investors will also closely monitor the central bank’s forward guidance and updated economic forecasts.
Any significant undershoot of inflation below the 2% target in 2027 and 2028 could carry important implications for future policy direction.
The combination of the vote split, guidance, and inflation projections is expected to shape market expectations for the months ahead.
