On Friday (November 6) during Asian trading hours, the pound traded in a narrow range against the dollar, currently hovering around 1.3455. The pound's six-day winning streak ended just above 1.3500 after the Bank of England raised interest rates to 4% on Thursday, in full market pricing. The pound had touched that level on Wednesday—its highest since mid-September—and again on Thursday.

Bank of England decision: Nine votes unanimously raised interest rates, but Bailey said it should not be seen as the beginning of a series of rate hikes.

All nine members of the Bank of England's Monetary Policy Committee voted in favor of raising interest rates, with one even advocating for a direct 50 basis point increase, indicating a strong consensus within the committee regarding inflationary pressures. Governor Bailey explicitly stated after the meeting that this rate hike should not be interpreted by the market as the beginning of a series of rate increases, a key hedging signal in the decision. The central bank simultaneously raised its inflation path, projecting inflation to be close to 5% by mid-2027, significantly higher than the 3.5% recorded in September. The market reacted swiftly: the probability of another rate hike in December rose from about one-third before the decision to nearly 50%, with an additional 75 basis point increase priced in by the end of 2027. The practical implication of this combination is that the rate hike itself has been fully priced in. While the unanimous vote should have sent a hawkish signal, Bailey's statement that it "should not be seen as the beginning of a series" effectively limited the possibility of further consecutive rate hikes, restricting the pound's rebound momentum. Traders therefore focused more on inflation data and subtle changes in subsequent meeting wording, rather than solely relying on this unanimous vote.

The US dollar recovered lost ground: initial jobless claims were lower than expected, and unit labor costs declined; there is approximately a 70% probability of a December recovery.

The dollar index quickly recovered some of its losses after falling to a near one-month low on Wednesday, following a decline in the dollar after Democrats won both houses of Congress. Latest data showed that initial jobless claims fell to 189,000, significantly lower than the market expectation of 196,000; and unit labor costs actually fell by 0.7% in the third quarter, instead of the previously expected 0.6% increase. These data collectively eased concerns about an overheated labor market. The market's pricing in a December Fed rate hike subsequently fell from over 80% on Wednesday to around 70%. Meanwhile, the Bank of England's benchmark interest rate rose to 4%, now in line with the upper end of the Fed's 3.75%-4.00% target range. The interest rate differential between the UK and the US has essentially disappeared, meaning that the support the pound had previously gained from relatively high interest rate expectations has significantly weakened. The dollar regained buying interest after the data improvement and the easing of political turmoil, further suppressing the pound's upside potential and shifting the focus of the currency market back to the subtle differences in the monetary policy paths of the two countries and the sustainability of economic data.

Key events: Friday's non-farm payrolls and Fed officials' speeches; next week's UK data releases.

October non-farm payroll data will be released later on Friday, with an expected increase of 65,000, compared to 29,000 in September. New York Fed President Williams and Fed Governor Bowman will also speak on Friday. The October Consumer Price Index (CPI) will be released next week, with an expected increase of 0.3% month-on-month, compared to 0.6% previously. These figures will all influence the Fed's meeting on December 8-9. In the UK, Governor Bailey, Deputy Governor Lombardelli, and Chief Economist Pill will all speak next week. Third-quarter GDP will be released on November 12, with a previous growth of 0.5%, which will affect the Bank of England's December meeting.

in conclusion

The pound lost its rebound from the Bank of England's rate hike, halting its six-day winning streak above 1.3500 and currently trading around 1.3455. The core reason is that the "good news has been priced in": the rate hike has been fully priced in, and while the nine-vote consensus should have leaned hawkish, Bailey's statement that it shouldn't be seen as the start of a series of rate hikes suppressed any possibility of further increases. Meanwhile, the dollar recovered some ground—lower-than-expected initial jobless claims and declining unit labor costs have brought the probability of a December Fed rate hike to around 70%; the 4% bank interest rate is in line with the upper limit of the Fed's range, essentially eliminating the interest rate differential advantage between the UK and the US, thus weakening the support the pound previously gained from interest rate expectations. Short-term direction depends on Friday's non-farm payrolls and Fed officials' speeches repricing expectations for rate hikes, as well as next week's UK GDP figures and Bank of England officials' statements providing guidance for the December meeting. (GBP/USD daily chart, source: FX678) At 8:27 Beijing time, GBP/USD was trading at 1.3455/56.