Sterling steadies as investors await Fed

By Jemima Kelly

LONDON, July 29 (Reuters) - Sterling steadied against the dollar and euro on Wednesday as markets awaited a policy statement from the Federal Reserve later in the day for a steer on when U.S. interest rates will start to rise.

While the Fed is expected to hike rates by the end of the year, a recent slide in commodity prices and market turmoil in China have cast doubt on expectations of a September hike. The Bank of England, meanwhile, is expected to raise rates around the beginning of next year, though that is data-dependent.

Growth numbers on Tuesday showed the UK economy got back on track in the second quarter, but the strength of the pound hurt manufacturers, putting the BoE (Shenzhen: 000725.SZ - news) in a tricky spot.

Earlier this month sterling hit a 7-1/2-year high against the BoE's trade-weighted basket of currencies, having gained over 6 percent so far this year.

It was flat on Wednesday at 1.5619, and at 70.83 pence per euro.

"The Fed is going to leave their options open for a September rate hike but they're not going to get pre-committed," said Hans Redeker, global head of FX strategy at Morgan Stanley (Xetra: 885836 - news) in London.

"The BoE is also going to hike rates but I think it is going to be after the Fed. Why would you, as a relatively small country, raise your hat and say 'I'm first'?"

Mixed data on Wednesday showing British lending to non-financial businesses plummeted in June, while mortgage approvals and lending to consumers rose, had no apparent impact on the pound.

The BoE's monetary policy committee (MPC (KOSDAQ: 050540.KQ - news) ) meets next week, and for the first time will simultaneously publish its decision on interest rates, the breakdown of how its policymakers voted along with a summary of their debate, and its quarterly forecasts for Britain's economy, including inflation.

No interest rate change is expected although the vote could expose the first split on the nine-member MPC this year. Some are betting that up to three members will vote in favour of an immediate rate hike.

"We see scope for this meeting to deliver a more hawkish message and remain positioned for euro/sterling downside via a derivatives recommendation," wrote BNP Paribas (Xetra: 887771 - news) strategists in a research note. (Editing by Jeremy Gaunt)