By Joice Alves
LONDON – Sterling fell on Wednesday versus a strengthening dollar as a risk-off mood dominated ahead of the publication of the minutes of the most recent U.S. Federal Reserve meeting.
After hitting a one-week high against the greenback and a 12-day high against the euro on Tuesday, sterling fell below $1.38.
It was 0.1% lower versus the dollar at $1.3784 by 1550 GMT, after rising on Tuesday to its highest since June 28 at $1.3898.
Versus the euro, it was flat at 85.63 pence, after jumping to a high of 85.36 pence in the previous session.
“Markets are currently positioning themselves ahead of tonight’s pivotal FOMC minutes release, which has so far broadly translated to a bout of broader USD strength,” said Ima Sammani,FX Market Analyst at Monex Europe.
Markets are looking for cues around a timing for rate lift-off or stimulus tapering, she added.
U.S. bond yields fell below a key level as investors sought safety in bonds, and stocks steadied ahead of the readout on U.S. monetary policies later in the day.
“The retreat in risk sentiment … has also weighed upon sterling. The pound is usually pressured during risk-off episodes,” said Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital.
Sterling had found support this week on British Prime Minister Boris Johnson’s plans to end social and economic COVID-19 restrictions in England. But investors remain cautious as the government also warned that the number of coronavirus cases could climb as measures are relaxed.
Sterling has been among the top performing G10 currencies this year following Britain’s quick vaccination rollout.
Those gains have evaporated in recent weeks as other countries implemented successful vaccination programmes and as the Federal Reserve hinted at an earlier-than=expected end to easy monetary policy, giving the dollar a boost.
Another reason for the recent leg lower in the pound was a warning by Bank of England governor Andrew Bailey against an overreaction to inflation in Britain.