Sterling edges up versus dollar before BoE policy meeting

By Stefano Rebaudo

March 17 (Reuters) - Sterling ticked higher against the U.S. dollar as investors waited for a heavy slate of central bank meetings, including the Bank of England.

The greenback climbed sharply during the Middle East conflict as investors sought safe-haven assets, while other currencies were more vulnerable to the adverse economic fallout from a fresh oil shock.

UK's lower exposure to energy shocks compared with the euro area has also helped underpin sterling's recent resilience against the single currency.

The pound was last up 0.05% on the day against the dollar at $1.3328. It hit $1.322 last week its lowest level since December 3.

The greenback struggled for direction on Tuesday as investors shifted their focus to this week's central bank meetings amid uncertainty about the conflict in the Middle East and the oil price outlook.

Investors expect the BoE to keep rates steady on Thursday, with investors closely watching any signals about how policymakers would react to a potential new oil shock.

"The Bank of England meeting on Thursday is the main focus, in particular the Monetary Policy Committee members' reaction to the prospect of sharply higher energy prices and market assumptions that the Bank is done cutting," said Enrique Diaz Alvarez, chief economist and credit risk officer at Ebury.

J.P. Morgan now expects the Bank of England to keep interest rates unchanged throughout 2026.

The euro was roughly unchanged at 86.35 pence after hitting 86.18 pence last week, its lowest since early February.

"The pound strength has been fading as the UK faces mounting vulnerabilities, including sticky inflation fuelled by higher energy prices, strained public finances, weak growth, and rising political risks," said strategists at Rabobank in a research note, after highlighting that Sterling net short positions have climbed for the fifth week in a row.

Jobs data are due on Thursday before the BoE policy meeting.

Morgan Stanley was neutral on the pound as carry supports the currency, but a deterioration in a country's terms of trade driven by energy prices an already-challenged labour market outlook will weigh on the British currency.

The rate outlook keeps the pound it attractive in carry trades, when investors buy high-yielding currencies after funding positions in lower-yielding ones.

(Reporting by Stefano Rebaudo; Editing by Leroy Leo)