Sterling wavered near one-week lows against the dollar on Wednesday as concerns about slowing economic growth and political risks lingered a day after Scotland proposed an independence referendum.
Investors will also pay close attention to remarks from Bank of England governor Andrew Bailey for any hints about plans to hike interest rates at its August meeting. Bailey is due to speak at a forum of central bankers in Sintra, Portugal.
“This year the Bank of England’s strategy has been to communicate less on forward guidance, which has seen UK rates track U.S. rates more closely,” ING strategists wrote.
“With inflation staying near the highs, we doubt Governor Bailey will want to push back too much against tightening expectations today,” they said.
By 0742 GMT, the pound was flat at $1.2183, near the lowest level in almost one week. Against the euro it edged up 0.2% at 86.20 pence from a near two-week low.
Dollar buoyed by safe-haven status as investors sweat over recession risks
The BoE faces the difficult task of taming price pressures, which surged to a 40-year high of 9.1% in May, without further damaging the economy through policy tightening.
The bank has said it would act “forcefully” if needed to combat inflation but the poor macro outlook has meant a more gradual pace so far for rate hikes, which has widened a policy differential compared to the United States.
Money markets fully price in a 25 basis point BoE rate hike for August and give a 78% chance of a 50 bps move.
Political risk is also on the rise after Scottish First Minister Nicola Sturgeon on Tuesday proposed another independence referendum for October 2023.
Johnson and his Conservative Party, which is in opposition in Scotland, strongly oppose a referendum, saying the issue was settled in 2014 when Scots voted against independence by 55% to 45%.
The pound has fallen more than 9% since the start of the year against a rising dollar and is set for its biggest six-month drop since November 2016.
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