Pound Steadies Near One-Month Low Ahead of Fed and BoE Decisions

The British pound traded around $1.33 on Wednesday, little changed from the previous session and hovering near its weakest level in almost a month, as investors awaited policy decisions from the US Federal Reserve later in the day and the Bank of England on Thursday. The Fed is widely expected to leave interest rates unchanged, though markets still price in roughly a 30% chance of a 25-basis-point hike. In the UK, the BoE is also expected to keep its Bank Rate at 3.75%, with investors focusing on the vote split for signals on the future policy path. Recent data showed UK inflation slowed to a 15-month low of 2.6% in June, below the BoE's forecast, supporting expectations of a pause. However, concerns persist that the recent surge in energy prices could rekindle inflationary pressures in the months ahead as higher costs feed through to households and businesses.

The British pound fell below $1.33, its weakest level in nearly a month, as investors tracked developments in the Middle East while the US dollar gained support from lingering expectations that the Federal Reserve could still raise interest rates on Wednesday. Although a pause in US attacks on Iran pushed oil prices lower and eased inflation concerns, US Treasury yields declined only modestly, reflecting persistent market caution. Investors are also awaiting the Bank of England's policy decision later this week, with markets widely expecting interest rates to remain unchanged at 3.75%. Recent inflation data has reinforced that outlook, with annual consumer price growth slowing to a 15-month low of 2.6% in June, below the BoE's projections. A delayed pass-through of higher wholesale energy prices to regulated household bills has kept UK inflation below levels seen in the US and the euro area, where central banks are still expected to raise interest rates in September or October.

The pound rose to $1.334, rebounding from a three-week low reached last week, as easing tensions between the US and Iran and a sharp decline in oil prices boosted risk sentiment. Brent crude retreated from two-month highs after Washington and Tehran paused hostilities and resumed diplomatic contacts, helping to ease inflation concerns and prompting money markets to slightly scale back expectations for policy tightening. Investors are now focused on the Bank of England's policy decision later this week, with policymakers widely expected to keep interest rates unchanged at 3.75%. Recent inflation data has strengthened that view, with consumer price growth slowing to a 15-month low of 2.6% in June, below the BoE's forecasts. A delayed pass-through of higher wholesale energy prices to regulated household bills has also kept UK inflation below that of the US and the euro area, where the European Central Bank is still expected to deliver another rate hike in September or October.