LONDON: A deepening dollar sell-off propped up the British pound on Wednesday, putting it on track for its biggest daily rise in 2-1/2 weeks before a UK central bank meeting on Thursday where policymakers may give a downbeat assessment of the economy.
The greenback fell broadly as bets grew the US Federal Reserve might hint at more policy stimulus at the conclusion of a meeting. The Fed decision is due at 1800 GMT.
Markets are keen to see the US central bank's economic projections, and particularly whether it spells out where it sees inflation headed and what that means for interest rates.
"Major currencies are up against the dollar, including the pound, with the oil price rise also helping," said Kenneth Broux, a strategist at Societe Generale in London. "It seems to be risk on into the Fed."
Leaving aside the pre-Fed policy decision bounce, the odds are stacked in favour of further pound weakness.
While the Bank of England (BoE) is widely expected to hold fire, policymakers are likely to conclude that downside risks to the economy are rising due to growing Brexit uncertainty and renewed restrictions on social activity.
Geoffrey Yu, senior EMEA market strategist at BNY Mellon, said the BoE would now have to contend with Brexit and fiscal uncertainty, and the pound's recent weakness was warranted.
Sterling had its worst week in six months last week, as investors grew more pessimistic about the chances of a Brexit deal being reached before the December 2020 deadline.
The pound rebounded 0.8% to $1.2997 on Wednesday, moving away from a late July low of $1.2768 hit last week.