Pound Flat as Dollar Rally Pauses Ahead of BoE Decision

The British pound traded flat on Thursday, while the euro held near recent levels as the dollar's post-Federal Reserve rally stalled ahead of the Bank of England's rate decision.

The dollar had surged broadly on Wednesday after the Fed delivered a 25bp hike alongside a hawkish dot plot. Francesco Pesole, FX strategist at ING, noted that 'the dollar rallied across the board' with the US Dollar Index (DXY) up 0.6% and hitting a two-month high.

The market now prices 13bp of tightening for October and 32bp by December, with traders watching upcoming inflation and labour data for confirmation of the hawkish path. Pesole added that the dollar's trajectory remains 'heavily reliant on a de-escalation in the Gulf,' with oil prices being a key swing factor.

The Bank of England is expected to hold rates at 3.75% later on Thursday, with a 6-3 vote split, in line with consensus. Pricing implies just 2bp of tightening for the meeting itself. Pesole noted that there is 'little evidence' that the six doves are moving in that direction.