Sterling slides ahead of BoE most unpredictable meeting in years

By Joice Alves

LONDON (Reuters) - Sterling fell against a strengthening dollar on Thursday but the slide was capped by some expectations that the Bank of England could become the first major central bank to raise interest rates since the coronavirus pandemic.

The BoE will deliver its most unpredictable policy decision in years at 1200 GMT, when it will either raise borrowing costs from an all-time low or say it is waiting to ensure the post-lockdown economy is ready for a rate hike.

Ahead of the meeting, sterling slid 0.4% versus dollar to $1.3630 by 0815, after touching a weekly high during Asian trading hours.

Versus the euro, the pound fell 0.1% to 84.74 pence, just off a three-week low of 85.13 pence touched this week.

Markets are pricing in a rate rise to 0.25% from 0.1%, but economists polled by Reuters said it was too close to call, as Britain grapples with balancing rate rises to combat inflation with worries about the growth outlook.

Analysts at Citi, who expected a 15 basis point interest rate increase, suggested the currency could still not get a massive boost from the hike.

"In line with our marginally dovish base case, we’d see modest GBP downside and EURGBP upside around the meeting," Citi analysts said in a note.

Sterling is down almost 2% versus the dollar in the past three months, with several signals by BoE that the bank was ready to act to contain growing inflation only moderately supporting sterling as Britain faced a crisis over fuel and shortages of workers.

UniCredit economists told clients in a note on Thursday that they expected the Monetary Policy Committee to refrain from hiking rates just yet following the end of a pandemic job support scheme and elevated new COVID-19 cases, but the Italian bank was not completely ruling out a 0.15% rate increase either "following several hawkish remarks by BoE officials," it said.

RBC analysts said they expected that the "MPC will hold off raising Bank Rate on this occasion".

(Reporting by Joice Alves, Editing by William Maclean)