BoE Dovish Tone Fails to Support Sterling as Dollar Rally Continues

The Bank of England's decision to hold interest rates has sent mixed signals for the pound. Sterling fell by 0.23% to 1.3350 despite a broader rally in risk assets, suggesting markets viewed the accompanying minutes as more dovish on the rate outlook than the vote split alone indicated.

The BoE's minutes flagged inflation risks as 'tilted further to the upside' since July, driven by the Middle East conflict pushing energy prices higher. The Committee also voted unanimously to wind down its £370 billion holdings to zero via a multi-year plan, with £20 billion in annual sales averaging a £46 billion annual reduction through 2034.

On the dollar side, Wednesday's hawkish Fed decision continues to set the broader tone. Francesco Pesole, FX strategist at ING, noted that 'risks are more balanced for USD now that the monetary policy boost has been absorbed, but they remain tilted to the upside in the near term.' Twelve of 18 FOMC members project at least one more hike this year; markets price 13bp for October and 32bp by December.