The Dollar held firm before the Federal Reserve's rate decision later on Wednesday, whilst the Pound declined on increasing bets the Bank of England will pause its rate hiking cycle.

The US Dollar index – measuring the greenback against six rivals – stood at 105.10 ahead of the Fed's decision.

At the time of writing, Sterling was down 0.26% at $1.2360 after falling to its lowest in close to four months as data revealed Britain's inflation decelerated more than forecast in August.

Indeed, the UK's annual consumer price inflation (CPI) fell to 6.7% in August, according to Wednesday's official data.

Whereas economists surveyed by Reuters had predicted CPI would increase to 7.0% from 6.8% in July.

"A shock deceleration in UK inflation provides good news for the BoE heading into tomorrow's rate decision," according to Monex Europe FX Market Analyst Nick Rees. 

Money markets have now begun to price in almost a 50-50 chance the Bank of England will keep rates on hold on Thursday following 14 consecutive hikes going back to December 2021. Yet on Tuesday, markets were pricing in just a 20% pause in the hiking cycle, Reuters reports.

Britain's inflation data "is casting serious doubts about whether the BoE will hike rates tomorrow," said ING strategist Francesco Pesole.

In the US, markets forecast the Fed will almost definitely keep rates on hold at between 5.25% and 5.50%, with the focus on the bank's forward guidance.

"Powell will aim for neutral, well-trod rhetoric: acknowledging progress in the data, continuing to stress data dependence, keeping the possibility of another hike live and only vague mention of the 2024 path," according to Global Head of FX Strategy at RBC Europe, Elsa Lignos.

Futures markets are pricing in a 30% chance of a 25-basis point rise in November or a 35% chance it will be in December, as per the CME FedWatch tool.