The pound held steady on Thursday as investors weighed rising oil prices linked to escalating US-Iran tensions ahead of the European Central Bank’s interest rate decision.
Sterling traded flat at $1.338 and was on course for its first monthly gain against the dollar since April, while holding firm at 0.853 against the euro after a slight decline during the session.
The ECB is widely expected to keep interest rates unchanged at its meeting on Thursday, while leaving open the possibility of a rate increase in September as crude oil prices climb.
Oil prices rose 4% to $98 a barrel, reaching their highest level in more than a month as concerns over potential supply disruptions intensified.
The rise in energy costs has raised concerns that inflation in Britain could accelerate later this year, despite data showing domestic inflation slowed more than expected in June.
“I expect price pressures to continue to increase, particularly over the upcoming summer months, so when we start to see the prints for August and September, inflation will push above 3%,” said Modupe Adegbembo, an economist at Jefferies.
The Bank of England is also expected to hold rates steady at its meeting next week, although markets are pricing in a possible quarter-point rate increase by December and an 87% chance of another hike.
Meanwhile, UK government bond yields rose after Finance Minister John Healey expressed concerns over rising business costs and the cost of living.
Sterling remains one of the better-performing Group of 10 currencies this year, supported by investor positioning, carry trades and potential merger activity, although analysts warn recent gains could fade as UK rate expectations and fiscal concerns weigh on the currency.
Ojo Triumph
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