By Joice Alves
LONDON (Reuters) - Sterling rose on Wednesday against the euro and the dollar ahead of U.S. inflation data later in the day, while traders also focused on a European Central Bank meeting on Thursday and UK economic figures due this week.
Traders are watching for signs of when central banks might start cutting interest rates.
The U.S. consumer price data for March, due at 1230 GMT, could provide hints on the Federal Reserve's policy outlook, while Thursday's ECB meeting may give investors an indication as to when the central bank will trim its rates.
"While we see a good chance that both the euro and sterling will be driven in large part by Wednesday’s U.S. inflation report, a couple of noteworthy announcements later in the week look set to trigger bouts of fresh volatility in markets," said Matthew Ryan, head of market strategy at Ebury, mentioning the ECB policy decision and UK GDP figures.
UK gross domestic product (GDP) data due on Friday will provide an indication as to the state of the economy and clues on how much longer the Bank of England (BoE) can hold rates at 5.25%.
Money markets are currently expecting 70 basis points of interest rate cuts by the BoE this year and they see a 60% chance of the first cut arriving in June, according to LSEG data.
“Investors will be hoping for a little more clarity on the bank’s plans for policy beyond then (June). We think that any clear forward guidance for the July meeting onwards is probably rather unlikely at this juncture, so investors may be left somewhat disappointed," said Ryan.
Sterling was 0.11% higher versus the dollar at $1.2693, at close proximity to a three-week high touched on Tuesday.
It rose to a one-week high against the euro, last 0.1% higher on the day at 85.55 pence.