Currency Markets on Edge: Sterling Climbs Ahead of Fed and BoE Announcements

Key Highlight

• Sterling continued its upward momentum, supported by a softer US dollar ahead of key central bank decisions.
• Markets are in a holding pattern, awaiting guidance from major policymakers on how they will manage rising energy costs alongside persistent inflation risks.
• Despite relatively calm price action, underlying market positioning suggests investors are preparing for potential volatility.

Market Recap

The pound strengthened for a second consecutive session, largely driven by broad-based dollar weakness as markets positioned ahead of a busy central bank schedule. Caution dominated trading, with investors reluctant to take strong directional views before the Federal Reserve announcement.

In overnight markets, performance was mixed across Asia. The Japanese yen edged higher amid renewed speculation around potential intervention, while the dollar traded within a tight range. Overall, markets remain focused on how policymakers will respond to the dual challenge of elevated energy prices and ongoing inflation pressures linked to geopolitical tensions in the Middle East.

Market Update

Attention today centres on policy decisions from the Federal Reserve and the Bank of Canada, with both expected to leave interest rates unchanged. The key driver for markets will be forward guidance specifically how central banks intend to balance inflation control against rising energy costs.

Looking ahead, commentary from the Federal Reserve will be particularly influential. Any indication that energy-driven inflation may persist could shift expectations and drive movement across major currency pairs.

While headline volatility remains subdued, market positioning tells a different story. Investors are increasingly hedging against sharp moves, meaning any unexpected shift in tone—particularly a more hawkish stance—could trigger rapid repricing.

Sterling’s next major test arrives with the Bank of England decision, set against a broader backdrop of announcements from other major central banks, which could set the tone for currency markets into the near term.

18th March 2026

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