The pound held steady on Thursday, little changed versus the dollar and slightly up against the euro, as investors waited for the Bank of England’s policy meeting.
The Fed decided to keep interest rates on hold in the near future, disappointing investors who had bet that the Fed might unveil more policy easing.
The dollar saw its biggest daily rise in more than a week and riskier currencies - including the pound - lost out. But the dollar’s gains subsided during the European session and the pound returned to just below $1.30.
Attention is now focused on the Bank of England’s monetary policy meeting, the minutes of which will be published at 1100 GMT.
The bank is widely expected to hold fire on new policy measures and send only a signal of its intent to do more in future.
But the economic projections are likely to be bleak, as Britain faces growing risks of a no-deal Brexit, rising COVID-19 cases and social restrictions, and the end to the government’s jobs support scheme.
“The economic reasons for holding the pound are becoming less evident,” said Peter Kinsella, global head of FX strategy at UBP.
Although no changes to monetary policy are expected at today’s meeting, investors expect further quantitative easing in November, and will be listening for hints about the possibility of negative rates,
At 1041 GMT, the pound was at $1.297, little changed since New York’s close.
It was up around 0.2% against a weaker euro, at 90.06 pence per euro.
Brexit talks were thrown into disarray by Prime Minister Boris Johnson proposing legislation that would break international law by breaching parts of the Withdrawal Agreement relating to Northern Ireland.
The bill is moving through parliament this week. The pound gained some respite on Wednesday after Johnson’s government reached a deal to avert a rebellion within his own party, by giving parliament a say in the use of the post-Brexit powers within the bill.
U.S. Democratic presidential candidate Joe Biden warned the UK that it must honour its commitments to Northern Ireland, or there would be no post-Brexit trade deal between the UK and United States.
Reporting by Elizabeth Howcroft, Editing by William Maclean