LONDON – The British pound (GBP) steadied on Wednesday as traders positioned themselves ahead of Thursday’s highly anticipated Bank of England (BoE) policy decision. Despite this, sterling remains near a seven-month low against the U.S. dollar (USD) and at its weakest level in over two years versus the euro (EUR).

Markets are currently pricing in roughly a one-in-three chance of a 25-basis-point rate cut by the BoE, creating potential for sharp short-term movements in GBP depending on the outcome.

Sterling last traded at $1.3049, marking a 0.2% gain on the day, though it hit an early low of $1.3011 in Asia—its weakest since mid-April. Against the euro, the pound slipped 0.1% to 88.07 pence, down from 88.3 pence in early trading, its highest level since May 2023.

Recent data, including a cooler-than-expected inflation report, has increased market speculation for potential BoE easing, pressuring the pound. Chris Turner, Global Head of Markets at ING, noted that the recent decline in sterling “may be more linked to the global equity correction” rather than shifts in BoE expectations.

Global stock markets, particularly high-growth technology stocks, have faced downward pressure this week. Historically, the pound performs well when investor sentiment toward global growth and equities is positive, and weakens when confidence falls.

Investors are also eyeing the UK government’s upcoming budget. Finance Minister Rachel Reeves recently indicated plans for broad tax increases, which could weigh on economic growth and influence the BoE to ease rates more aggressively, potentially putting further pressure on GBP.

On Wednesday, UK economic updates were limited, though a survey showed pay settlements in the three months to September remained steady at the joint lowest level since December 2021.

Meanwhile, U.S. markets closed sharply lower on Tuesday, with the Dow Jones Industrial Average dropping over 0.5% and the S&P 500 declining more than 1%.