Finance
Sterling rises against dollar on Fed-BoE policy divergence
Published by Global Banking & Finance Review®
Posted on September 16, 2025
2 min readLast updated: January 21, 2026
Quick Summary
Sterling rose against the dollar as BoE holds rates steady while Fed likely cuts rates. UK jobs data shows a cooling labor market.
Pound Strengthens Against Dollar Amid Fed and BoE Policy Differences
Impact of Fed and BoE Policies on Currency
By Canan Sevgili
UK Jobs Data and Its Implications
LONDON (Reuters) -Sterling gained against the dollar on Tuesday, after weaker British jobs data did not shake investors' belief that the Bank of England would keep rates steady, while the U.S. currency was under more pressure from a likely Federal Reserve rate cut.
Investor Sentiment and Currency Trends
Sterling rose as much as 0.3% to $1.3645, its highest in more than two months, before paring some of those gains to trade at $1.3624. The pound weakened against the euro, which rose 0.2% to 86.65 pence, consolidating within its recent narrow range.
Political Developments and Economic Deals
While the Fed is expected to cut rates by 25 basis points this week amid softening U.S. jobs data, the BoE is widely seen holding steady, which in theory would attract more investors to the higher-yielding pound.
A report on Tuesday from the Office for National Statistics showed payrolls fell for a seventh consecutive month, while private sector wage growth slowed to 4.7% between May and July, down from 4.8% in the previous three months.
The data suggest Britain's labour market is cooling, which could ease some concern among some BoE officials over persistent inflation pressures, but was unlikely to move the needle for Thursday's rate decision.
"UK labour data showed tentative signs weakness may have bottomed out over the summer, though the figures are unlikely to alter the near-term BoE outlook," said Michael Brown, senior research strategist at Pepperstone.
MUFG senior currency analyst Lee Hardman said the pound would likely get a continued lift from investor expectations of a divergence between BoE and Fed monetary policy.
Elsewhere, the dollar was a touch weaker against a basket of peers, with investors fully expecting a Fed rate cut on Wednesday.
On the political front, the United States and Britain will announce more than $10 billion in energy and tech deals during President Donald Trump's second state visit this week, as London seeks progress on steel tariffs under a broader trade pact.
(Reporting by Canan Sevgili; Editing by Amanda Cooper and Alex Richardson)
Key Takeaways
- •Sterling rose against the dollar due to policy divergence.
- •BoE expected to hold rates steady, attracting investors.
- •UK jobs data shows cooling labor market.
- •Fed likely to cut rates amid soft US jobs data.
- •US-UK announce $10 billion in energy and tech deals.
Frequently Asked Questions about Sterling rises against dollar on Fed-BoE policy divergence
1What recent data influenced the pound's rise against the dollar?
Weaker British jobs data did not shake investors' belief that the Bank of England would keep rates steady, leading to a rise in Sterling against the dollar.
2What is the expected action from the Fed regarding interest rates?
The Fed is expected to cut rates by 25 basis points this week amid softening U.S. jobs data.
3How did the UK labor market perform according to recent reports?
A report showed payrolls fell for a seventh consecutive month, and private sector wage growth slowed to 4.7% between May and July.
4What is the outlook for the Bank of England based on current data?
The data suggests that while the UK's labor market is cooling, it is unlikely to alter the near-term outlook for the Bank of England.
5What political events are affecting the currency market?
The United States and Britain are set to announce over $10 billion in energy and tech deals during President Trump's state visit, which could influence market sentiment.
