Dollar Strengthens as Fed-BoE Policy Divergence Widens

The US dollar has strengthened as the Federal Reserve and Bank of England's policy divergence widens. The eurozone is facing headwinds, with labor costs rising by 3.1% in the second quarter, from 3.3% in the first quarter.

However, the European Central Bank's wage index suggests that average wage increases are expected to be less than 2%. This contradicts some of the inflation data, but there is still an upside risk for inflation due to high energy prices.

The Bank of England is expected to keep interest rates on hold at 3.75% on Thursday, but may provide hints on where rates could be headed in November. Markets have an 80% probability of a November rate hike by the BoE, but most economists believe there is not enough justification for further increases.