Pound Holds Steady as Investors Await ECB Interest Rate Hike

The pound held steady against both the euro and dollar on Thursday as investors awaited an expected interest rate hike from the European Central Bank. The ECB is widely anticipated to raise rates by a quarter point to 2.5%, with markets also pricing in another increase by the end of the year and an 80% chance of a third by March.

The euro traded at 85.89 pence, little changed on the day, while the pound edged up against the dollar to $1.355. UK GDP data for July is due on Friday, with economists polled by Reuters expecting the economy to have stalled after growing 0.3% in June.

George Vessey, lead FX and macro strategist at Convera, noted that strong growth in the first half of the year has put Britain on track to be one of the G7's fastest-growing economies. However, he warned that support from unusually warm weather and the soccer World Cup is likely to fade, posing risks to both the pound and interest rate outlook.

Vessey also cautioned that a weaker-than-expected GDP reading could erode sterling's yield advantage and leave the pound more vulnerable to downside pressure. UK inflation and wage growth data are due next week, which may provide further insight into the country's economic trajectory.