ECB Rate Hike Looms, but Pound Held Steady Amidst Wait-and-See Trade

The pound held steady on Thursday as traders weighed a likely European Central Bank (ECB) rate hike against upcoming US inflation and UK growth updates.

Currency markets have slipped into wait-and-see mode, with the pound little changed against the euro. The main tension is interest-rate expectations, as traders largely expect the ECB to raise rates by a quarter point to 2.5%, while the Bank of England (BoE) is widely seen as staying put at its next meeting.

The divergence in central-bank paths affects short-term bond yields between the UK and eurozone, which in turn influences hedging costs for banks and companies that price big chunks of trade and travel. This means that UK data will be crucial in determining the pound's rate advantage and putting pressure on sterling.