Sterling gives back some Fed-inspired gains, eyes on local elections

The British pound slipped against the dollar, having risen the day before after the Federal Reserve's policy meeting, while investors were playing down the impact UK local elections on Thursday might have on the currency.

The pound was last down 0.1% against the dollar at $1.2509, having risen 0.3% the day before after Fed Chair Jerome Powell ruled out hiking interest rates, which weighed on the U.S. dollar. "The Fed will be data dependent and if data were to show another boost to inflation then you can't completely rule out another rate hike," said Jane Foley, head of forex strategy at Rabobank.

"But it does seem the Fed believes the possibility of that is very small right now." While the Fed signalled that U.S. interest rates would be held at higher levels for longer, investors are looking to the Bank of England's meeting next week for clues on when its policy easing could begin.

The BoE is widely expected to keep interest rates unchanged when it announces policy on Thursday, but with inflation slipping back towards target, a rate cut at the following meeting might be put on the table. "We expect the May MPC meeting to set the stage for a June rate cut," Deutsche Bank senior economist Sanjay Raja said in a note.

Elsewhere, analysts were watching the results of local elections taking place in the UK on Thursday, but were not expecting financial markets to take much notice of the results, even with a general election likely before the end of the year. "Politics is not really a factor for sterling at the moment," said Francesco Pesole, FX strategist at ING.

"It's going to take quite a lot to convince investors that Labour are not going to win the election, so I don't think this will have an impact on financial markets at all." Labour holds a lead over the ruling Conservative Party of around 20 points in most recent opinion polls, putting the opposition party on track to gain a majority in the House of Commons for the first time since 2005.

The pound was little changed at 85.53 pence per euro .

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