The recent depreciation of the U.S. dollar has been significantly influenced by the policy divergence between the Federal Reserve's aggressive rate cuts and the Bank of England's steady stance on interest rates.
With the Fed's unexpected 50-basis point rate cut, the GBP/USD pair saw a strong reaction, pushing the British pound above the 1.33 mark, the highest since March 2022.
While the BoE maintained its interest rate at 5%, the Fed’s shift to a more expansive monetary policy has given the pound a temporary edge, leading to higher UK borrowing costs.
Inflation in the UK's services sector remains a concern, with a notable inflation rate of 5.6% in August, which is impacting the central bank's policy decisions.
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