LONDON (Reuters) - The pound held steady above $1.30 on Tuesday, around its highest in 15 months, a day ahead of crucial British inflation data that will shape expectations for Bank of England policy, and hence the currency, in the coming months.
Sterling was last at $1.3090, up 0.12% on the day, and was also a fraction stronger against the euro, which traded at 85.86 pence.
The British currency reached as high as $1.3144 last week, its highest since April 2022, in the wake of data that showed inflation is cooling in the United States.
That caused markets to reduce bets of additional U.S. rate hikes after this month's U.S. Federal Reserve meeting, and the dollar to soften across the board.
Early last week the pound also firmed to as much as 85.05 pence per euro, its strongest since August 2022.
British inflation has remained much higher than in the United States - and to a lesser degree the euro zone - and as a result markets expect more rate rises from the BoE, which surprised traders with a 50 basis point rate increase in June.
Higher rates are typically a boost for a currency in the near term, though many analysts say the resulting hit to economic growth will weigh on the pound in the long run.
"We are observing some positioning ahead of tomorrow's key release of the UK inflation numbers," said Francesco Pesole, FX strategist at ING, adding the "CPI data will make or break a 50bp August rate hike by the Bank of England."
"Today, the UK calendar is empty. We suspect EUR/GBP can remain broadly supported into tomorrow’s CPI," Pesole added.