Environment variable substitution in sed

Your two examples look identical, which makes problems hard to diagnose. Potential problems:

1. You may need double quotes, as in sed 's/xxx/'"$PWD"'/'

2. $PWD may contain a slash, in which case you need to find a character not contained in $PWD to use as a delimiter.

To nail both issues at once, perhaps

sed 's@xxx@'"$PWD"'@'

In addition to Norman Ramsey's answer, I'd like to add that you can double-quote the entire string (which may make the statement more readable and less error prone).

So if you want to search for 'foo' and replace it with the content of $BAR, you can enclose the sed command in double-quotes.

sed 's/foo/$BAR/g'
sed "s/foo/$BAR/g"

In the first, $BAR will not expand correctly while in the second $BAR will expand correctly.