Sterling is hovering at a one-year high as traders await the BoE’s decision.

The Bank of England is expected to raise interest rates by 25 basis points this week, according to traders.

The market is also anticipating significant US inflation numbers on Wednesday, which will give additional insight into the world’s largest economy’s fight against inflation.

On Tuesday, sterling fell against the US dollar but remained near to the previous day’s one-year high, ahead of the Bank of England’s (BoE) policy announcement later this week.

At 0904 GMT, the pound was down 0.3% against the dollar at $1.26145, but up 0.17% against the euro at 87.06 pence.

Sterling is still hovering at a more than one-year high reached on Monday, when it hit $1.26680, its highest level versus the dollar since April 26th, 2022.

Stronger-than-expected economic data from the United Kingdom, which has thus far avoided a deep recession, is one factor driving the pound’s strong performance, as is a weaker dollar, which has been dragged down by slower U.S. inflation and growing expectations that the Federal Reserve is nearing the end of its rate-hiking cycle.

In order to combat double-digit inflation, the Bank of England has raised interest rates 11 times since December 2021.

A significant thing to monitor, according to Simon Harvey, head of FX analysis at Monex Europe, will be how the BoE controls expectations.

“Given the BoE has been consistent in pushing back on market expectations, should the market implied inflation forecasts not show inflation substantially falling below the 2% target over the medium-term, sterling is likely to rally,” said Harvey.

The Bank of England is expected to raise interest rates by 25 basis points this week, according to traders.

The market is also anticipating significant US inflation numbers on Wednesday, which will give additional insight into the world’s largest economy’s fight against inflation.