Sterling rises on Ukraine talks hopes

The British pound edged higher against the U.S. dollar on Wednesday but was lower against the euro, supported by optimism surrounding negotiations between Ukraine and Russia, though a Bank of England rate decision on Thursday capped gains.

The British pound edged higher against the U.S. dollar on Wednesday but was lower against the euro, supported by optimism surrounding negotiations between Ukraine and Russia, though a Bank of England rate decision on Thursday capped gains. Ukrainian President Volodymyr Zelenskiy said on Wednesday peace talks were sounding more realistic but more time was needed, while Russian foreign minister Sergei Lavrov said some formulations for agreements with Ukraine were close to being agreed.

"Interestingly, GBP is struggling to recoup the war-related losses, unlike other European currencies," said ING FX strategist Francesco Pesole. "This might be related to some wait-and-see approach ahead of tomorrow's Bank of England meeting," Pesole added.

Against a strengthening euro, sterling was down 0.2% at 84.07 pence. The pound rose 0.2% against the U.S. dollar to $1.3065, after touching a 16-month low of $1.3000 on Tuesday.

The upcoming policy announcements from the Bank of England and Federal Reserve remain in focus, with overnight implied volatility near its highest in 15 months. "GBP/USD is rather delicately poised ahead of this evening's FOMC, and tomorrow's BoE decisions, with overnight implied volatility approaching the December 2020 highs seen last week," said Michael Brown, head of market intelligence at Caxton.

Both central banks are seen raising their respective benchmark interest rate by 25 basis points.