LONDON (Reuters) - Sterling held near a one-week low on Wednesday before a Bank of England policy meeting that is widely expected to see interest rates raised for only the second time since the global financial crisis.
Bond markets have priced in a quarter-point increase to 0.75 percent. But any dovish comments from policymakers could cause sterling to drop, and that possibility checked appetite for the pound.
Investors broadly took in their stride a manufacturing survey that showed British factory activity slightly losing momentum in July.
“Markets are broadly primed for a dovish hike from the BoE, and if that is the case we could see sterling being sold into any post-hike rallies,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.
The pound was slightly weaker at $1.3117, not far from last Tuesday’s $1.3072.
A lift in British bond yields in early London trading — thanks to a sell-off in Japanese bonds that has rippled over into global markets — also failed to boost sterling.
Risk appetite in markets was muted amid concerns that trade tensions between the United States and its trading partners were set to escalate after reports that Washington plans to propose higher tariffs on $200 billion in Chinese imports.
With traders eyeing the outcome of a U.S. central bank meeting later in the day, major currency pairs were boxed in tight ranges. [FRX/]
The pound was flat against the yen and the Swiss franc, both barometers of risk appetite.
Recent data in Britain pointed to an economy that was recovering from a slowdown in the first quarter but still struggling. Wage growth was weaker than expected given low unemployment and limited domestic inflationary pressures.
Reporting by Saikat Chatterjee; Editing by Catherine Evans