The pound held steady on Monday as investors waited for the Bank of England decision later in the week, with the focus on the Bank of Japan and Federal Reserve in the meantime.
Sterling was broadly unchanged from Friday at $1.2379. It fell 1.2% last week as U.S. inflation data beat expectations, boosting bets that the Fed will hold rates higher for longer and causing the dollar to rally. The euro was up 0.1% at 85.58 pence.
The Bank of England will almost certainly hold rates at 5.25% on Thursday as officials wait for more data, particularly on wages and services, on how durable the recent fall in inflation might be.
Price growth in Britain has slowed from 11.1% in October 2022 to 4% in January. February's consumer price index inflation figures are due on Wednesday and are expected to show a further fall to 3.6%.
"GBP (sterling) has been one of the best performing currencies this year, but with inflation surprises tilting lower and softer labour market indicators materialising, the BoE could err on the dovish side," said Paul Mackel, global head of FX research at HSBC (LON:HSBA). "This would support our higher EUR-GBP view."
Before that, investors are focused on the Bank of Japan's decision on Tuesday, which could see the central bank end eight years of negative interest rates.
Then the focus will turn to the Fed on Wednesday, where analysts will scrutinise the new 'dot plot' of officials' projections for where rates are heading.
{{2126|The dodollar index was slightly lower on Monday at 103.37. It has climbed around 2% this year as U.S. economic data has come in stronger than expected.
