By Karen Brettell
(Reuters) -Sterling rose on Thursday after more policymakers than expected at the Bank of England voted to keep rates on hold, even as the British central bank cut rates by 25 basis points as was widely expected.
Four of the BoE’s nine policymakers – worried about high inflation – sought to keep borrowing costs on hold, suggesting the BoE’s run of rate cuts might be nearing an end.
The decision “was a little bit more hawkish than the market expected,” said Sarah Ying, head of FX strategy, FICC Strategy at CIBC Capital Markets in Toronto.
The British pound was last up 0.47% on the day at $1.342.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,was up 0.05% at 98.23. The euro fell 0.13% to $1.1644.
The euro was boosted earlier on Thursday, reaching a more than one-week high of $1.1698, as investors welcomed talks in search of a breakthrough to end the war in Ukraine.
Russian President Vladimir Putin and U.S. President Donald Trump will meet in the coming days, after Trump’s envoy, Steve Witkoff, held talks with Putin.
The single currency is likely to continue to be supported against the U.S. dollar by a relatively more hawkish central bank.
“The biggest shift in the foreign exchange markets is really the idea that there’s a little bit more tariff certainty – tariff uncertainty has declined,” said Ying.
“The central bank story is going to start to matter a lot more … moving forward there’s going to be enough of a rate differential that that’s going to matter most to markets.”
Markets are pricing in a cumulative 14 basis point decline in ECB rates by the end of 2026, with hikes expected in late 2026 and 2027, compared to expectations of 128 basis points in Fed rate cuts in the same time frame.
LABOR MARKET
Traders boosted bets that the Fed would cut rates in September after July’s jobs report on Friday showed fewer jobs gains than expected and sharp downward revisions to previous months.
Data on Thursday showed that the number of Americans filing new applications for unemployment benefits ticked higher last week, suggesting the labor market was largely stable even though job creation is weakening and it is taking laid-off workers longer to find new jobs.
Investors are also focused on Trump’s expected nomination to fill a coming vacancy on the Fed’s Board of Governors after Adriana Kugler last week unexpectedly announced she was leaving, as well as the candidates for the next Fed Chair.
Trump said on Wednesday he would likely in the next two to three days nominate a candidate, out of a shortlist of three, to serve Kugler’s remaining months, leaving the choice of a permanent replacement for a later date.
On Tuesday, Trump said he had narrowed his search for a new Fed chair to four people. Trump has repeatedly criticized current Chair Jerome Powell, whose term ends in May, for being too slow to cut interest rates.
Against the Swiss franc, the dollar strengthened 0.09% to 0.807, after President Karin Keller-Sutter returned from Washington empty-handed after a trip aimed at averting a 39% tariff on the country’s exports to the U.S.
In cryptocurrencies, bitcoin gained 1.37% to $116,701.
(Reporting by Karen Brettell; Additional reporting by Stefano Rebaudo; Editing by Alison Williams)
