Sterling could rise as the Bank of England is likely to raise interest rates by 25 basis points to 4.5% as expected on Thursday and potentially signal further rate increases.
Activity and inflation data have both surprised on the upside in the past few weeks opening the door for hawkishness in the BOE's forecasts and statement that indicates the potential for further rate rises.
The dollar weakened broadly today after U.S. President Joe Biden and top lawmakers failed to break a deadlock on the debt ceiling crisis, though currency moves were marginal amid caution ahead of U.S. inflation data later in the day.
Biden and House of Representatives Speaker Kevin McCarthy remained divided over raising the $31.4 trillion U.S. debt limit following talks on Tuesday, with just weeks to go before the United States may be forced into an unprecedented default.
The two, however, agreed to further talks and committed their aides to daily. Biden, McCarthy and the three other top congressional leaders are set to meet again on Friday.
There has been a lot of attention lately on the debt ceiling issues, analysts don't think the issue will be resolved anytime soon. Typically, in the past, the issues usually get resolved very last minute.
So that means there could be some more volatility in markets ... and predictions are the dollar could weaken even further, as we have seen in the past.
Money markets are pricing in a roughly 80% chance that the Fed will keep rates on hold at its next meeting in June and expect rate cuts to begin in July through to the end of the year.
Rising expectations that the Fed will begin cutting rates later this year have been driven by recent stress in the banking sector following the collapse of Silicon Valley Bank in March.
