LONDON (Reuters) -Sterling consolidated at more than two-week highs on Tuesday but remained within recent trading ranges as analysts assessed the prospect of a 50 basis point rate hike by the Bank of England against the backdrop of a worsening economic outlook.
The BoE will likely shy away from such a large interest rate rise in August and stick with the more modest 25 bps increases it has been delivering, but it is a close call, a Reuters poll of economists found.
"BoE is priced for tightening like the Fed but with a far worse economic outlook than the United States," said Francesco Pesole, a strategist at ING Bank in London.
"The worsening economic outlook will push the BOE to hold a less hawkish stance."
Against the U.S. dollar, the pound touched its highest level since early July at $1.2090 as it moved from a March 2020 low of below $1.18 revisited this month. It was trading around $1.2052 in late London trading.
Versus the struggling euro, the British unit gained to 84.11 pence.
Latest positioning data show investors have consolidated their bearish bets on the pound at $4.3 billion, not far from a near two-year peak of $6.2 billion in May.
Market sentiment was also cautious ahead of a two-day Federal Reserve meeting on Wednesday, when investors widely expect the Fed to raise interest rates by another 75 bps.
(Reporting by Saikat Chatterjee; Additional reporting by Sujata Rao; Editing by Barbara Lewis and Gareth Jones)