Sterling Holds Steady Ahead of Bank of England Policy Decision

The British pound remained largely stable on Wednesday as investors awaited the Bank of England’s policy announcement, with traders cautious about making big moves before potential signals on the timing of future rate cuts.

Sterling was trading around $1.28 against the US dollar in early London hours, hovering near a two-week high reached earlier this week. Against the euro, the pound also showed little movement, holding close to €1.16. Market analysts said the muted performance reflected investor hesitation ahead of Thursday’s interest rate decision and accompanying remarks from Governor Andrew Bailey.

“The market has priced in a long pause by the Bank of England, but traders are now looking for any hint that a rate cut could come earlier than expected,” said Michael Grant, currency strategist at Barclays. “After a series of encouraging inflation prints, investors want reassurance that policymakers see the disinflation trend as sustainable.”

Economists broadly expect the central bank to keep rates unchanged at 5.25 percent for the sixth consecutive meeting. However, recent signs of economic softness, including sluggish retail sales and slowing wage growth, have prompted some analysts to suggest the BoE could pivot toward a more dovish tone in its forward guidance.

Data released earlier this week showed UK pay growth slowing to its lowest level in nearly four years, while consumer price inflation remains on course to return to the bank’s 2 percent target by mid-2026. The combination of easing price pressures and weakening economic momentum has led investors to bet on rate cuts beginning as early as May next year.

Market volatility is expected to increase once the central bank releases its statement and updated economic forecasts. “The tone of the Monetary Policy Committee’s language will be critical,” said Fiona Ellis, an economist at Hargreaves Financial. “If Bailey signals confidence that inflation is under control, sterling could soften slightly as rate expectations shift lower. But if he remains cautious, the pound might hold its ground.”

Globally, the pound’s stability mirrored broader calm in foreign exchange markets, as traders focused on central bank meetings across major economies. The US Federal Reserve’s recent pause and mixed data out of Europe have kept currency ranges relatively tight.

Meanwhile, UK bond yields edged lower ahead of the meeting, with the 10-year gilt yield slipping to 4.05 percent, suggesting growing market confidence that borrowing costs have peaked. Equity markets also traded higher, with the FTSE 100 hitting record territory earlier this week.

For now, investors appear to be taking a wait-and-see approach. “The pound’s resilience shows that confidence in the UK’s economic outlook is improving,” Grant added. “But the Bank of England’s tone tomorrow will determine whether sterling continues to firm or loses some of its recent momentum.”