Investing.com — Sterling was little changed on Thursday while the euro edged lower, as the Bank of England raised rates as expected and the dollar’s post-midterm correction paused near 101.5 on the DXY. Traders now turn to tomorrow’s U.S. payrolls.
Sterling rose 0.01% against the dollar to $1.3472, while the euro slipped 0.04% to $1.1223, as of 07:15 ET (12:15 GMT).
The BoE raised the Bank Rate by 25 bps to 4% by an 8-1 vote, with Catherine Mann dissenting in favour of a 50 bp move.
That was a more hawkish split than the 7-2 ING had expected. Sterling’s reaction was muted, and Wednesday’s gain was driven mainly by dollar weakness rather than UK fundamentals, though HSBC also cited BoE hike expectations and easing fiscal worries.
The minutes offered mixed guidance on further tightening. “A single 25-basis point hike is unlikely to be sufficient,” BoE Chief Economist Huw Pill said, while Megan Greene said “additional hikes will likely be required going forward.”
Alan Taylor pushed back, saying “this is not the start of a hiking cycle” but a “one-for-now insurance hike.” The BoE sees CPI rising to around 5% by mid-2027, and its next decision is due Dec. 17.
ING’s base case remains a February follow-up hike, which is already fully priced in, so “the bar for a hawkish surprise lifting the pound seems fairly high,” Pesole said.
The Democratic midterm sweep delivered the dollar weakness ING had anticipated, but the bank sees limited room to extend it. “In our view, rates need to start moving against the dollar to justify a greater adjustment,” Francesco Pesole, FX strategist at ING, said.
Falling oil is not clearly dollar-negative: with crude down 8% on Wednesday, two-year USD swap rates fell 5 bps, while EUR, GBP and NZD swaps fell 8-10 bps. “That is the most compelling argument against chasing the dollar much lower,” Pesole said.
Data remains supportive of Fed tightening expectations, a hawkish-leaning read. ISM services was a touch softer than expected, but its employment subindex rose to 51.4, the highest since February, and ADP payrolls came in at 86k.
Consensus for Friday’s payrolls is 65k, with the whisper number at 70k. Today brings Challenger job cuts and third-quarter unit labour costs.
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