LONDON, Feb 3 (Reuters) – The pound was little changed on Tuesday as a light economic calendar made for steady trading ahead of the Bank of England’s interest rate decision on Thursday.
Sterling was last trading flat against the dollar at $1.3672, having gained around 1.4% this year on the back of stronger-than-expected economic data.
Market participants expect the Bank of England to hold rates at 3.75% on Thursday before cutting borrowing costs once or twice later in the year.
Britain’s inflation rate rose more than expected to 3.4% in December, the highest in the Group of Seven most affluent nations, although the BoE expects it will drop to its 2% target by around the middle of the year.
“Markets now think the Bank of England will wait until probably the May policy meeting before cutting rates further,” said Lee Hardman, senior currency analyst at Japanese bank MUFG.
“I think that delayed expectations for the Bank of England rate cuts is helping the pound to strengthen.”
There will be little in the way of major UK economic data until growth, employment and inflation figures in mid- to late February.
Recent data, including stronger-than-expected GDP figures for November and a bounce in retail sales in December and business activity in January, has helped push the pound higher this year against the dollar and euro.
It touched a more than four-year high of $1.3867 in late January, aided by a fall in the dollar driven by trade uncertainty and expectations of further U.S. rate cuts.
U.S. President Donald Trump’s decision to pick Kevin Warsh as the next Federal Reserve chief has boosted the dollar, however, as traders regard him as less likely to slash interest rates than other candidates.
The euro was last flat against the pound at 86.29 pence. It has slipped around 1% against sterling this year.
(Reporting by Harry Robertson and Sophie Kiderlin; editing by Amanda Cooper and Mark Heinrich)
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