The U.S. dollar drifted lower on Thursday, pausing after a sharp climb to multi-month highs earlier this week, while the British pound advanced as investors awaited the Bank of England’s latest monetary policy announcement.
At 04:10 ET (09:10 GMT), the Dollar Index — which tracks the greenback against six major currencies — slipped 0.3% to 99.772, retreating from its strongest level since April.
Dollar Sees Mild Correction
The greenback edged lower in early trading, easing from recent highs after upbeat U.S. labor data boosted market confidence and encouraged investors to move away from safe-haven assets.
The dollar’s strong run in recent weeks has been fueled by growing confidence that the Federal Reserve will keep rates unchanged in December. That sentiment was reinforced when Chair Jerome Powell cautioned that a rate cut “was not a given” at the central bank’s final meeting of the year.
“While we note signs that the dollar rally is running out of steam, it’s equally true that markets are lacking a compelling story to rebuild dollar shorts,” analysts at ING wrote. “The lack of data and cautious Fed communication means there aren’t many in sight. We expect some rangebound trading today, with lingering risks of correction in the dollar based on short-term overvaluation.”
Sterling Gains Ahead of Bank of England Meeting
The pound edged higher, with GBP/USD up 0.2% at 1.3072, as traders positioned for the Bank of England’s rate decision later in the day.
Markets largely expect the central bank to hold its main policy rate steady at 4.0%, given that U.K. inflation remains the highest among G7 economies.
Still, the outcome isn’t guaranteed. Easing inflation pressures and speculation that Chancellor Rachel Reeves could announce tax increases in the upcoming budget have added uncertainty to the mix.
“Markets are pricing in a 25% probability of a Bank of England cut today,” ING noted. “Our call is for a hold, as a single positive inflation print shouldn’t be enough to bring an MPC majority behind a cut.”
“But the vote split could be 6-3 or perhaps a more dovish 5-4, which would signal the bar isn’t high for a cut in December.”
Elsewhere in Europe, the euro also gained modestly, with EUR/USD up 0.2% at 1.1520, recovering slightly after touching a three-month low earlier this week.
German industrial production rose by just 1.3% in September, missing expectations for 3% growth — another indication of sluggish momentum in Europe’s largest economy.
Still, “EUR/USD is trading well within undervaluation territory, as the dollar rally has extended beyond what can be justified by short-term drivers such as rate differentials and equities,” ING said.
BOJ Edges Closer to Rate Hike
In Asia, the Japanese yen strengthened slightly, with USD/JPY down 0.3% to 153.74 after Japan reported stronger wage growth data.
Wages rose 1.9% in September, a sharp rebound from 1.3% in August, marking the strongest increase in several months. The improvement has heightened expectations that the Bank of Japan could raise interest rates soon.
The data followed minutes from the BOJ’s September meeting, which showed policymakers increasingly leaning toward a rate hike in the coming months.
Meanwhile, USD/CNY slipped 0.1% to 7.1224 after the People’s Bank of China set a slightly stronger daily midpoint. The Australian dollar also gained, with AUD/USD up 0.1% to 0.6510, helped by solid September trade and export data.