The GBP/USD currency pair pulled back from a 1-week high of 1.3576 on Tuesday ahead of the outcome of the Bank of England’s and the Federal Reserve’s policy meetings.
The Bank of England is expected to leave its benchmark interest rate intact at 3.75% at its April 30th meeting.
In March, the BoE highlighted global energy price risks from the Middle East conflict and stressed readiness to act to maintain 2% CPI inflation in the medium term.
Inflation projections showed potential increase to around 3% in Q2 and up to 3.5% in Q3.
Data by the Office for National Statistics showed that the UK Consumer Price Index had risen 3.3% year-on-year in March. It followed two consecutive months of 3% annual inflation and underscored the inflationary impact of the Middle East war.
Yet, BoE Governor Andrew Bailey noted that spare economic capacity could help contain inflation.
Although the central bank opted to leave interest rates unchanged, its March communication was perceived as more hawkish than markets had anticipated. Rate hike expectations for later this year have risen after the March announcement.
Meanwhile, the Fed is largely expected to leave its federal funds rate target range intact at 3.50%-3.75% at its April 28th-29th meeting, following three successive rate cuts last year.
The vast majority of FOMC policy makers judged that upside risks to inflation and downside risks to employment were elevated, while many officials noted these risks had risen with developments in the Middle East, the minutes from the Fed’s March meeting showed.
A prolonged confrontation in the Middle East would likely trigger more persistent increases in energy prices, while these higher input costs would be more likely to pass through to core inflation.
Investors will also be paying close attention to the press conference with Fed Chair Jerome Powell for clues over the timing of future interest rate cuts.
FOMC policy makers had signaled one rate cut for this year and another one in 2027.
The GBP/USD currency pair was last down 0.17% on the day to trade at 1.3509.
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