The pound fell on Wednesday due to a strengthening dollar, as investors awaited the release of the Federal Reserve’s preferred inflation gauge on Friday.
Sterling was down 0.2% at $1.2661, around where it has traded for the past two weeks.
The euro was down 0.1% against the pound, at 84.37 pence, after falling to a two-year low of 84.40 pence on June 14, after French President Emmanuel Macron’s decision to Calling early parliamentary elections would shake European markets.
US data on personal consumption expenditure inflation, due on Friday, will guide Federal Reserve policy and could cause swings in currency markets.
The pound has been one of the best performing currencies this year, with a fall of just 0.4% against the dollar, compared to a 3% decline in the euro and a 13% decline in the yen.
Relatively high services and wage inflation in Britain has traders expecting the Bank of England to cut rates only once or twice this year. That has kept upward pressure on bond yields, making them attractive to many investors and thus supporting the pound.
Expectations that the Labor party will win a large majority in the July 4 general election and bring some long-missing stability to British politics have also been supporting sterling.
However, economists and investors say there are risks to British financial markets from a Labor party that has been coy about its exact plans for taxes and spending.
“On fiscal responsibility, everything Labor is doing is the polar opposite of the (Liz) Truss fiasco,” said Joe Tuckey, head of currency analysis at broker Argentex. “That’s definitely, on the whole, a favorable dynamic for sterling.”
However, Tuckey said the real determinant of the pound for the rest of the year would be the Bank of England’s interest rate policy.
“If you’re talking about sterling in the medium term, between now and the end of the year, these elections are not the main driver,” he said. “We will look again at whether the Bank of England cuts in August.”
The dollar index, which measures the currency against six major peers, was last up 0.2% at 105.88.
