The U.S. dollar slipped slightly on Thursday, taking a breather after hitting multi-month highs earlier in the week, while the British pound firmed in anticipation of the Bank of England’s latest policy announcement.

At 04:10 ET (09:10 GMT), the Dollar Index — which measures the greenback against six major peers — traded down 0.3% at 99.772, having reached its strongest level since April earlier this week.

Dollar Pulls Back After Rally

The dollar saw a mild correction in early Thursday trading, retreating from its recent highs as upbeat U.S. labor figures lifted risk appetite and reduced demand for the safe-haven currency.

The greenback’s recent strength has been underpinned by rising expectations that the Federal Reserve will hold off on cutting interest rates in December, especially after Chair Jerome Powell cautioned that a rate reduction “was not a given” for the year’s final meeting.

“While we note signs that the dollar rally is running out of steam, it’s equally true that markets are lacking a compelling story to rebuild dollar shorts,” said analysts at ING in a research note. “The lack of data and cautious Fed communication means there aren’t many in sight. We expect some rangebound trading today, with lingering risks of correction in the dollar based on short-term overvaluation.”

Sterling Firms Ahead of BOE Decision

In Europe, GBP/USD climbed 0.2% to 1.3072, supported by a softer dollar as traders awaited the Bank of England’s policy decision.

The U.K. central bank is widely expected to keep its benchmark rate unchanged at 4.0%, as Britain continues to grapple with the highest inflation among the G7 nations.

However, the outcome is not entirely certain. Signs of easing inflation pressures and expectations that Chancellor Rachel Reeves will raise taxes in the upcoming budget could influence the tone of the meeting.

“Markets are pricing in a 25% probability of a Bank of England cut today,” said ING. “Our call is for a hold, as a single positive inflation print shouldn’t be enough to bring an MPC majority behind a cut.”

“But the vote split could be 6-3 or perhaps a more dovish 5-4, which would signal the bar isn’t high for a cut in December.”

Meanwhile, EUR/USD rose 0.2% to 1.1520 after hitting a three-month low earlier this week.

German industrial production figures came in weaker than forecast, increasing 1.3% in September compared to the expected 3%, highlighting sluggish activity in Europe’s largest economy.

That said, “EUR/USD is trading well within undervaluation territory, as the dollar rally has extended beyond what can be justified by short-term drivers such as rate differentials and equities,” noted ING.

BOJ Rate Hike Expectations Grow

In Asia, USD/JPY fell 0.3% to 153.74, with the yen finding support from stronger wage growth data.

Wages rose 1.9% in September, up sharply from 1.3% in August — the weakest level in a year. The improvement adds pressure on the Bank of Japan to raise interest rates. The latest figures came just a day after minutes from the BOJ’s September meeting revealed that policymakers are increasingly open to a rate hike in the coming months.

Elsewhere, USD/CNY slipped 0.1% to 7.1224 after the People’s Bank of China set a slightly stronger daily midpoint, while AUD/USD edged up 0.1% to 0.6510 following robust export and trade balance data for September.

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