Pound Holds Steady as Markets Await ECB and US Rate Signals

The pound was little changed against the euro and dollar on Thursday as investors awaited an expected European Central Bank rate increase and fresh U.S. inflation data.

Sterling has traded within a narrow range against the euro for about six weeks. The euro was at 85.89 pence, while the pound edged up to $1.355.

Markets expect the ECB to raise euro zone interest rates by 0.25 percentage points to 2.5%, with further increases largely priced in through early next year.

The Bank of England, however, is not expected to raise rates next week. Markets have priced in two increases through March, although analysts say those expectations may be too aggressive.

UK economic growth data for July are due on Friday. Economists expect the economy to have stalled after expanding 0.3% in June, leaving annual growth at 1.2%.

Analysts warn that fading support from warm weather and the World Cup could weaken economic activity and put pressure on the pound. UK inflation and wage data are due next week and could provide further clues about the Bank of England’s rate path.