The dollar’s strength is likely to be transitory, analysts say, as the U.S. central bank is widely expected to maintain its policy settings and Fed Chairman Jerome Powell is seen as likely to repeat his dovish message.
The pound has traded in a sideways pattern against the dollar and euro for the past couple of weeks, driven largely by moves in the dollar as analysts wait to see the impact of Britain’s gradual reopening of its economy.
Political noise around Britain’s ruling Conservative party has left the currency largely unaffected, while it has reacted positively on signs the economy is rebounding. Still, even as the market remains positioned on balance for gains in the currency, analysts say a lot of good news has been priced in.
By 0750 GMT, sterling was 0.3% lower against the dollar at $1.3875. It was 0.1% lower to the euro at 86.99 pence.
“The pound has been quite unaffected by the political noise in the UK, remaining broadly supported against both the euro and the dollar this week,” said Francesco Pesole, G10 FX strategist at ING.
“A bearish-dollar outcome of the Fed meeting today should provide an extra tailwind for cable to make another attempt at the $1.40 level later this week.” Reporting by Ritvik Carvalho; Editing by Giles Elgood