Sterling Rises as Fed Cuts Rates, BoE Policy Held in Anticipation

The British pound surged against the dollar following the Fed's rate cut announcement, while investors awaited the Bank of England's decision on borrowing costs. With inflation steady but rising in services, markets speculated on future rate cuts. Analysts emphasize the significance of upcoming fiscal data and committee vote dynamics.

Sterling surged against a weakening dollar after the Federal Reserve announced a 50 basis point interest rate cut, while investors keenly awaited the Bank of England's policy decision due Thursday, expected to maintain borrowing costs at current levels.

The pound briefly touched $1.3297, its highest mark since March 2022, immediately following the Fed's announcement on Wednesday. It later settled at $1.3257, up by 0.35%. The increase followed data revealing that British inflation remained steady in August, with a rise in the services sector from 5.2% in July to 5.6% in August, closely watched by the BoE.

Money markets are pricing in a 20% chance of a 25 basis points rate cut from the BoE on Thursday, down from around 28% after the inflation data. Analysts predict the BoE will keep its main interest rate at 5.00% but may reduce it in November, despite inflation staying above the 2% target. The upcoming fiscal outlook and committee vote dynamics could be crucial in determining sterling's trajectory.

(With inputs from agencies.)