Sterling drops ahead of Bank of England rate decision

By Greta Rosen Fondahn

(Reuters) -Sterling fell against the dollar on Thursday, on track for its biggest daily drop in about a month, as investors awaited the outcome of the Bank of England's meeting, at which the central bank is widely expected to cut interest rates.

Markets are pricing in a 94% chance the BoE will cut rates by 25 basis points to 4.5% on Thursday, after which investors do not see a second easing until June.

The Bank will also publish its latest projections for the economy.

The pound was trading 0.74% lower against the greenback at $1.2414, breaking a three-day rising streak, after having touched a four-week high at $1.255 the day before.

It looked set for its biggest one-day drop against the dollar since January 10.

Sterling edged down 0.3% against the euro ahead of the BoE's decision, with one euro at 83.45 pence. The single currency was on track for its biggest rise against the pound since January 14.

Investors worry about a stagnating British economy, but domestic price pressures remain hot, limiting the central bank's scope to act.

"While the Monetary Policy Committee may wish to ease more rapidly, sticky inflation doesn't permit them to do so yet, and will likely also prevent any kind of dovish pivot at this stage," said Michael Brown, senior research strategist at Pepperstone.

While sterling has edged up from the 14-month low of $1.21 it hit on January 13, the pound is still down 0.77% so far this year, as markets have priced in more BoE cuts due to slowing growth.

Markets expect the BoE to cut rates three times in 2025, and price in a total 85 bps of easing this year.

(Reporting by Greta Rosen Fondahn; Editing by Amanda Cooper)