LONDON: The British pound slipped against a broadly stronger dollar on Wednesday, with investor focus set to turn to the Bank of England policy announcement on Thursday when it is expected to raise rates for the sixth consecutive time.
Money markets are currently pricing in a greater than 90% chance of an outsized 50 basis point rate hike at Thursday’s meeting, according to Refinitiv data, as the central bank attempts to cool inflation from a four-decade high of 9.4%.
More than 70% of 65 analysts and economists surveyed by Reuters also expect a half-point increase from the bank’s Monetary Policy Committee this week, a poll conducted between July 27 and Aug. 1 found.
But analysts said the pound was largely being driven by external factors on Wednesday ahead of Thursday’s policy announcement.
“The pound is treading water ahead of tomorrow’s Bank of England rate meeting,” said Michael Hewson, chief market analyst at CMC Markets UK, saying that the dollar has strengthened as Fed officials have pushed back on the recent dovish narrative and after strong US services data.
The Institute for Supply Management said its US non-manufacturing PMI rebounded to a reading of 56.7 last month from 55.3 in June, ending a run of three straight monthly declines.
Meanwhile, Federal Reserve members Charles Evans, Mary Daly, Loretta Mester and James Bullard signalled that they and their colleagues remain resolute on getting interest rates up to a level that will bring inflation back down to target.
At 1506 GMT, sterling was down 0.48% against the stronger dollar at $1.2100, edging further away from a one-month high reached on Monday.
Against the euro, the pound was little changed at 83.585 pence, just off Tuesday’s 15-week high.
Ahead of Thursday’s meeting, ING analysts said some Bank of England (BoE) members have highlighted the pound has a role to play in monetary policy settings, and trade-weighted sterling has risen 3% from its lows in July.
“With gas prices staying high and the dollar likely to stay strong, arguably the BoE would prefer a stronger pound now,” they said in a note.
Meanwhile, survey data from Britain confirmed services sector activity grew in July at the slowest pace since early 2021 when the country was under a coronavirus lockdown, although there was an easing of price pressures.