LONDON (Reuters) - The pound edged off multi-month highs against both the dollar and the euro on Thursday ahead of a Bank of England meeting which traders will be watching to see if policy makers undermine or support pricing for more rate increases later this year.
Sterling dipped 0.36% against the dollar to $1.2580, a touch below the $1.2679 it hit Wednesday, its highest since late April 2022.
The British currency was also a touch softer versus the euro, which was at 86.92 pence. The euro dropped to 86.72 pence on Wednesday, its lowest since December.
The main developments for the pound are due later, however, with the Bank of England announcing its rate decision at 12 p.m. (1100 GMT), followed by a press conference by Governor Andrew Bailey and others half an hour after.
Markets believe a 25 basis point (25 bps) increase is all but certain, so their focus will be on any indications about the BoE's future path. Current pricing indicates almost two more 25 bps increases after Thursday's expected rise.
"A less hawkish BoE could pull down market pricing for rate hikes and weigh on (the pound against the dollar) temporarily," said Carol Kong, currency strategist at Commonwealth Bank of Australia.
From a technical perspective, Kong said there "is no downside support for GBP/USD until $1.2337," the pair's 50-day moving average.
The BoE's task is complicated by stubbornly high inflation that stands at double the rate of the United States and much higher than in the euro zone too.
If that leads to the Bank keeping interest rates elevated for longer than other central banks, that would typically be seen as supportive for the pound.