Pound steady ahead of Fed, BoE policy decisions

July 29 - Sterling held near four-week lows against the dollar on Wednesday as investors pinned their focus on Federal Reserve's monetary policy decision, even as escalations in the Middle East war ramped up. 

The pound was steady at $1.3291, but remained near its weakest trading levels since July 2.

Oil prices rose more than 4% on Wednesday following a fresh escalation in tensions in the Middle East after U.S. and Saudi strikes in Iraq and an intercepted Iranian missile attack on U.S. forces. 

Meanwhile, market participants remained on the sidelines awaiting an action-packed week of key central bank decisions, including the Bank of England and Bank of Japan.

The Bank of England's policy decision on Thursday, where it is widely expected to keep interest rates steady, comes at a crucial time in Britain's political climate, as Andy Burnham became the country's seventh prime minister in a decade.

"On the surface, the renewed hostilities in the Middle East give real ammunition to the hawkish faction of the MPC," said Matthew Ryan, head of Market Strategy at global financial services firm Ebury.

"Yet we think that neither current oil prices, nor recent economic data warrant a hasty response, either in the form of an immediate rate hike or an overly hawkish set of communications."

Burnham has pledged to reshape domestic politics and said he would stick to the previous government's fiscal rules, although he would look to use any flexibility within them. 

"We're looking at sterling from the perspective of - we have seen two summers now of general speculation about UK fiscal constraints. We think we're going to get a third and that tends to be a sterling negative dynamic," Nick Rees, head of macro research at Monex Europe, said.

Investors have cut their bearish bets on sterling to around $4.64 billion this week, compared to an 11-year high of $8.72 billion in the week ending June 22, according to CFTC data.

"The BoE may end up being a side-show to the ongoing squeeze in sterling positioning," BofA Global Research analysts said in a note.

(Reporting by Siddarth S in Bengaluru; Editing by Amanda Cooper and Arun Koyyur)