LONDON, Nov 2 (Reuters) - The pound edged higher on Thursday ahead of an interest rate decision from the Bank of England, while the dollar fell after the U.S. Federal Reserve held borrowing costs steady on Wednesday.

Sterling GBP=D3> was last up 0.29% at $1.2185. The currency fell to a seven-month low of $1.2039 in early October and has since traded in a range just above that level.

Investors and economists expect the Bank of England to keep interest rates at a 15-year high on Thursday and to signal that it plans to keep them at the current 5.25% level for an extended period.

Signs of a slowdown in much of the British economy have become clearer since the Bank held rates at its last meeting, although inflation remains stronger than in many other major economies.

The Fed on Wednesday held rates in the 5.25% to 5.5% range, their highest level in 22 years. Chair Jerome Powell said the central bank may need to raise rates again but was comfortable waiting to see whether the latest run of strong economic data continues.

Traders interpreted the Fed decision and Powell's comments as relatively dovish on inflation, leading U.S. bond yields to fall and bring the dollar down with them.

The dollar index, which tracks the greenback against its major peers, was last down 0.28% at 106.17.

It has traded sideways since hitting an almost one-year high of 107.34 in early October on the back of a sharp rise in U.S. bond yields driven by strong economic growth.

Joe Tuckey, head of FX analysis at broker Argentex, said the muted trading in currency markets in recent weeks was due to the fact that central banks are in "wait-and-see mode" on rates and inflation.

"We've reached the point now with these central bank meetings when we're in a bit of a holding pattern, so it makes sense to see some reduced volatility and consolidation," he said.

"We come to the Bank of England today and it's incredibly unlikely that they'll do anything and we're now in wait-and-see mode."

The euro was up 0.28% against the pound at 87.23 pence on Thursday. It has also been range-bound over the last month but is down 1.5% against sterling this year.

The pound was one of the more subdued currencies in global markets on Thursday. The euro rose 0.5% against the dollar as investors sold the same-haven dollar, encouraged by the fall in global borrowing costs after the Fed meeting and smaller-than-expected government borrowing from the U.S. Treasury.

(Reporting by Harry Robertson Editing by Gareth Jones)