Dollar Dips as Investors Await Bank of England Decision
The U.S. dollar edged lower on Thursday, pausing after a recent surge to multi-month highs, while the British pound gained ground ahead of the Bank of England’s (BOE) policy meeting.
At 04:10 ET (09:10 GMT), the Dollar Index — which tracks the greenback against six major currencies — fell 0.3% to 99.772, retreating from its highest level since April earlier this week.
Dollar Corrects Lower After Strong Rally
The dollar’s pullback came after the release of positive U.S. labor data, which encouraged investors to take on more risk and reduced demand for the safe-haven currency.
The greenback had been on a strong upward trend in recent weeks, supported by expectations that the Federal Reserve will keep interest rates unchanged in December. This came after Fed Chair Jerome Powell signaled that a rate cut at the final meeting of the year was not guaranteed.
Analysts at ING noted that while signs show the dollar rally may be losing momentum, there’s still little incentive for markets to increase short positions. They expect rangebound trading with short-term correction risks driven by dollar overvaluation.
Sterling Rises Ahead of BOE Policy Call
In Europe, GBP/USD climbed 0.2% to 1.3072, supported by dollar weakness and anticipation of the Bank of England’s interest rate decision.
The BOE is largely expected to hold rates at 4.0%, as the U.K. inflation rate remains the highest among G7 economies. However, signs of easing price pressures and expectations of higher taxes in the upcoming national budget have added some uncertainty.
According to ING, markets are pricing in a 25% chance of a rate cut, but analysts expect the BOE to maintain its stance, with a potential 6-3 or 5-4 vote split signaling that a rate cut in December could still be on the table.
Euro Steadies as German Output Disappoints
The euro (EUR/USD) gained 0.2% to 1.1520, rebounding after dropping to a three-month low earlier in the week.
Data showed German industrial production rose 1.3% in September, below the 3% forecast, highlighting sluggish growth in Europe’s largest economy.
Despite this, analysts at ING believe the euro remains undervalued, as the dollar’s strength has extended beyond fundamentals like interest rate differentials and equity performance.
Yen Strengthens as BOJ Rate Hike Nears
In Asia, USD/JPY traded 0.3% lower at 153.74, with the yen finding support from strong wage data showing 1.9% growth in September, up from 1.3% in August.
Rising wages have strengthened expectations that the Bank of Japan (BOJ) could raise interest rates soon, following meeting minutes that revealed policymakers are increasingly leaning toward a rate hike in the coming months.
Elsewhere, USD/CNY slipped 0.1% to 7.1224 after the People’s Bank of China set a stronger daily midpoint, while AUD/USD edged 0.1% higher to 0.6510 following strong export and trade balance data from Australia.
