Britain’s pound fell to its lowest level in three weeks on Thursday, as traders awaited a crucial Bank of England decision. Sterling slid 0.7% to $1.2764, its lowest since July 10, and also dropped against the euro, which rose 0.33% to 84.48 pence.
Derivatives markets showed a roughly 62% chance the BoE might lower rates during its announcement at 1100 GMT, similar to the odds on Wednesday and up from 58% at the start of the week. The BoE has maintained rates at a 16-year high since August 2023, but inflation has now fallen back to the 2% target from above 11% in 2022. Some policymakers remain cautious due to high inflation in wages and the services sector.
Joe Tuckey from Argentex noted investors have started to question their bets on sterling’s rally. The pound’s volatility was high, with implied overnight volatility reaching a one-year peak. Lee Hardman from MUFG said the dovish Fed policy update increased the likelihood of a BoE rate cut, putting pressure on the pound against the dollar.