The British pound fell in European trading on Wednesday against a basket of global currencies, extending its losses for the second consecutive day against the US dollar and pulling back from a two-week high, due to corrective moves and profit-taking, under pressure from the strength of the US currency amid investor doubts about a quick resolution to the conflict in the Middle East.

As expectations rise for the Bank of England to raise interest rates in April to address the impact of the Iran war and higher energy prices, markets are awaiting later today the release of key UK inflation data for February to reassess existing expectations for British interest rates.

Price Overview

British pound exchange rate today: the pound fell 0.2% against the dollar to $1.3384, down from the session opening level of $1.3407, after reaching a high of $1.3436.

The pound lost 0.1% against the dollar on Tuesday due to corrective moves and profit-taking, after recording a two-week high of $1.3480 in the previous session.

US dollar

The dollar index rose 0.2% on Wednesday, maintaining gains for the second consecutive session, reflecting the continued strength of the US currency against a basket of global currencies.

The rally comes as investors continue buying the dollar as a preferred safe-haven asset, amid strong doubts about the possibility of quickly ending the conflict in the Middle East, and that negotiations to end the Iran war will be complex and require a prolonged period to reach a peace agreement acceptable to all parties.

UK interest rates

The Bank of England kept interest rates unchanged last week for the second consecutive meeting.

All nine members of the Monetary Policy Committee (MPC) voted to hold rates steady, marking a notable shift after some members had previously leaned toward cutting rates.

The bank indicated that the shock of the war between the United States, Israel, and Iran has led to a sharp rise in global energy prices, which will increase fuel and utility bills for UK households and businesses.

The bank warned that inflation will rise in the near term (between 3% and 3.5%) due to higher energy prices, after previously showing signs of easing toward the 2% target before the conflict erupted.

Following the meeting, markets increased pricing for the probability of a rate hike by the Bank of England at the April meeting from 0% to 15%.

UK inflation data

To reassess expectations for UK interest rates, investors are awaiting later today the release of key inflation data for February, which is expected to have a significant impact on the Bank of Englands monetary policy path.

At 07:00 GMT, the headline consumer price index is expected to rise 3.0% year-on-year in February, unchanged from the previous reading, while the core CPI is also expected to remain steady at 3.1% year-on-year.

Outlook for the British pound

We expect here at Economies.com that if UK inflation data comes in above market expectations, the probability of a rate hike in April will increase, which would help reduce the current losses in the British pound.