The pound sterling weakened against the US dollar, falling below $1.22 to hit new session lows near $1.2121 on Tuesday. This drop came in response to fresh data from the United States, which revealed an increase in wages and employment costs. These figures have amplified concerns among traders, especially as the Federal Reserve and the Bank of England (BoE) appear to be moving in opposite directions regarding their monetary policies.
GBP/USD had shown signs of strengthening overnight due to declining US Treasury yields and a rise against the yen following the Bank of Japan’s (BOJ) unexpectedly dovish stance. However, the optimism was short-lived as US employment cost index (ECI) data dashed hopes for a dovish Fed. The higher employment costs have raised worries about inflation persisting in the near future, contrary to previous market expectations.
Despite the noise surrounding the pound, analysts suggest that GBP/USD is likely to remain within the current range that it has held since late September. Traders seem hesitant to make significant moves ahead of the Federal Reserve and Bank of England meetings scheduled for Wednesday and Thursday, respectively.
The upcoming Bank of England policy announcement on November 2 is widely anticipated to maintain the benchmark interest rates at 5.25%. Analysts indicate that this decision is already priced in, and the focus now turns to the accompanying monetary policy report for further guidance on the central bank’s future stance.
