GBP/USD Falls to July Low as BoE Holds at 3.75%

The GBP/USD currency pair has been in decline since the Bank of England's (BoE) decision to hold Bank Rate at 3.75%. The pair dropped from 1.3405 to 1.3360 immediately after the announcement, its lowest level since July. This marks a significant loss for sterling, which had been trading near 1.3400 in the European morning.

The BoE's decision was expected, but the hawkish tone of Governor Andrew Bailey warned that policy may have to tighten if the war in the Middle East remains unresolved and second-round effects from energy prices emerge. This suggests that the Bank is prepared to hike interest rates, but not yet willing to do so.

The Fed's move on Wednesday set up sterling's decline by raising the federal funds target range to 3.75% to 4.00%. The policy statement removed prior language tying elevated inflation to energy supply shocks and said the action would support a timelier return to the 2 percent goal.

With the Bank of England holding at 3.75%, sterling has lost its carry advantage over the dollar, leading to a repricing of this loss. The forward curve suggests that the pound may regain its yield edge in 2027 if both central banks deliver hikes as expected.