Sterling Edges Higher Despite Delayed BOE Rate Hike Expectations

Sterling/dollar edged higher in Friday's Asian session, last trading at 1.35907, after two consecutive daily declines. Market expectations for a near-term Bank of England rate hike have been pushed back, limiting sterling's upside room. The recent pullback in Brent crude oil prices, while marginally easing inflation concerns, has also diminished the urgency for the central bank to tighten policy, leaving sterling without a sustained catalyst for further gains.

**Cooling Rate Hike Expectations Cap Rebound**

The UK's latest inflation data met market expectations, reinforcing the policy outlook that the Bank of England will hold rates steady for now. According to market signals, the central bank has room to keep rates unchanged before energy price pressures materially transmit to core inflation. This shift in expectations means sterling lacks the scope for interest rate differential expansion at the macro level, with the rebound displaying more characteristics of a technical correction rather than a trend reversal.

**Oil Price Decline Has Dual Effects**

The recent decline in Brent crude prices has a complex impact on sterling. On one hand, lower energy costs directly drag down headline inflation readings, providing a policy buffer for the central bank; on the other hand, easing inflation pressures also weaken sterling's "anti-inflation premium." Against this backdrop, while sterling/dollar holds above the 1.35907 level, upside resistance remains firm, and bulls need to wait for new catalysts to organize an effective breakout.

**Short-Term Focus on External Risk Sentiment**

Beyond monetary policy expectations, geopolitical developments and global risk appetite also influence the exchange rate. Recent contradictory statements regarding mine-clearing operations in the Strait of Hormuz, as well as intensified strikes on infrastructure in the Russia-Ukraine conflict, could periodically boost safe-haven demand, indirectly pressuring sterling. Market participants believe that if risk-off sentiment intensifies, sterling/dollar could test downside support again, and the current modest gains are built on a fragile foundation.