LONDON: The British pound climbed to a 1-1/2 week high on Wednesday before a Bank of England meeting on Thursday where policymakers are widely expected to raise interest rates.
Investors have now fully priced a 25-basis-point rise in the BoE's main interest rate to 0.50% on Feb. 3 and economists polled by Reuters also expect that outcome from the meeting.
In early London trading, the pound was a shade higher at $1.3549, its highest level since Jan. 24. Against the euro, it was broadly steady at 83.37 pence.
The Bank of England was among the first off the blocks among its developed market peers to raise interest rates in December and money markets now expect a total of 100 bps in rate hikes this year.
Sterling rises for third straight session
While those punchy rate expectations are already priced into current levels of the pound, which is up 0.6% so far this year, analysts believe the British currency can extend gains if policymakers strike a more hawkish tone to curb inflation.
Most economists polled by Reuters also believe the BoE will also signal its approach to start unwinding its 895 billion pound ($1.2 trillion) quantitative easing programme.
"While the passive reduction of the balance sheet is unlikely to cause any major disruption, an earlier signal of active sales of the BoE's gilt holdings may create more volatility and could push yields higher," HSBC strategists said.
"This would also be supportive for the pound."
Currency markets ignored the latest news on the political crisis brewing in Britain over lockdown parties at Downing Street with a senior lawmaker saying he would submit a letter of no confidence in Prime Minister Boris Johnson on Wednesday.
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