The U.S. dollar edged lower Thursday, pausing for breath after recently surging to multi-month highs, while sterling looked towards the latest Bank of England policy meeting.

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower to 99.772, after touching its highest level since April earlier in the week.

Dollar corrects lower

The U.S. currency has seen a small correction early Thursday, pulling back from multi-month highs after the release of some encouraging U.S. labor data encouraged more risk taking, to the detriment of this safe haven.

The greenback has been on a tear of late, buoyed by growing bets that the Federal Reserve will not cut interest rates in December, especially after Chair Jerome Powell warned that a reduction at the final meeting of the year was not a given.

“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 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 awaits BOE decision

In Europe, GBP/USD gained 0.2% to 1.3072, with sterling helped higher by the dollar weakness ahead of the latest Bank of England policy-setting meeting.

The U.K. central bank is generally expected to hold its benchmark interest rate at 4.0% as Britain’s inflation rate remains the highest among the Group of Seven major advanced economies.

However, this decision is not seen as a certainty given there have been tentative signs that inflationary pressures are abating, while Chancellor Rachel Reeves is seen increasing taxes at the country’s budget later this month.

“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.” 

EUR/USD gained 0.2% to 1.1520, after the pair slipped to a three-month low earlier in the week.

German industrial production rose less than expected in September, increasing 1.3% over the previous month, below the 3% growth predicted.

The output figure underscores muted economic 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,” said ING.

BOJ hike draws nearer 

In Asia, USD/JPY traded 0.3% lower to 153.74, with the yen receiving some support from strong wage income data.

Overall wage incomes grew 1.9% in September, improving substantially from 1.3% in August – the weakest print in a year. 

Strong wage growth gives the Bank of Japan more impetus to hike interest rates. Thursday’s reading came just a day after the minutes of the BOJ’s September meeting showed policymakers leaning towards a rate hike in the coming months. 

USD/CNY traded 0.1% lower to 7.1224, as the People’s Bank set a slightly stronger midpoint for the day, while AUD/USD gained 0.1% to 0.6510 after the release of strong export and trade balance data for September.