Sterling edges up as markets await BoE signals on rate outlook

By Stefano Rebaudo

April 30 (Reuters) - Sterling edged up against the U.S. dollar on Thursday with investors on the sidelines ahead of a Bank of England rate decision later in the session.

The greenback was slightly lower after hitting a fresh multi-week high as fears of a further escalation in the Middle East lifted oil prices, while the Federal Reserve offered no hint of an easing shift. The British pound was last 0.1% higher against the dollar GBP= at $1.3488, and roughly unchanged against the euro at 86.63 pence EURGBP=. Markets broadly expect the BoE to leave rates unchanged, though uncertainty around the outlook remains high.

Money markets are pricing in roughly two rate hikes by year-end, even as BoE officials have sounded notably cautious about tightening policy. BoE Governor Andrew Bailey said in March that financial markets were getting ahead of themselves in expecting interest rate rises, while arguing a month later that the central bank was "not going to rush to judgements" on tightening policy.

"We continue to expect the BoE to hold rates steady through the summer before cutting in late 2026 once price pressures subside," said Kallum Pickering, chief economist and deputy head of research at Peel Hunt.

"While we cannot entirely rule out hikes, we see them only as a risk scenario that could materialise if inflation were genuinely to spiral out of control, rather than as our central expectation," he added.

A 9-0 vote, as in March, for a hold would be taken as a dovish surprise, according to Pickering, while BofA expects a 7-2 vote for a hold, with 2 votes for a hike.

Investors will also closely watch the forward guidance and the updated forecasts, where a sizeable undershoot of inflation below the 2% target in 2027 and 2028 would be significant.

(reporting by Stefano Rebaudo; Editing by Kate Mayberry)