Sterling fell 0.1% to $1.3364 after the BoE decision, its lowest level in seven weeks against the dollar, which had gained following the Fed's Wednesday hike.
Benchmark 10-year UK gilt yields dipped under 5.3%. German Bunds were nearly 3.53% while 10-year US Treasuries were hovering at 4.95%, just below the key 5% threshold.
The Fed's quarter-point rate rise overnight had been a unanimous decision and was accompanied by its closely watched 'dot plot' chart that projected one more hike this year.
Tai Hui, APAC chief market strategist at JPMorgan Asset Management, said investors would need to reassess the valuations for assets especially tech stocks if the Fed remained hawkish going into 2027.
"We think the chance of U.S. policy rates returning to above 5% is still limited. Nonetheless, a catalyst to extend the equity bull market is looking unlikely in the foreseeable future," he added.
Commodity markets also took a hit from the dollar's overnight rise. Brent crude futures slipped another 3.5% to $101 a barrel overnight too on reports Saudi Arabia was offering crude cargoes through Oman.
That had helped ease some of the concerns about Middle East supply disruption, following recent escalation of the seven-month war after attacks by Iran-backed Houthi fighters on Saudi cities.
Gold, however, showed some resilience, rising 0.7% to $4,293 an ounce, offsetting a similar fall overnight.
"We are still neutral on the dollar right now," Franklin Templeton's Wang said, explaining that the "bigger question" was whether its status as the world's top reserve currency would diminish at all over the longer term.
Wall Street, yields and the dollar
Wall Street was set to open almost 1% higher following the Fed's first rate hike in over three years on Wednesday that Chair Kevin Warsh described as removing "a dose of accommodation".
The dollar was taking a breather after it had hit a seven-week high in currency markets, underpinned by a jump in short-term Treasury yields as markets ramped up wagers that the Fed may have to lift rates again. But it had been notable that benchmark 10-year yields and longer-term 30-year yields had barely budged.
Lisa Wang, the head of EMEA investment strategy at Franklin Templeton Investment Solutions, said the hike made for "a more credible Fed and puts a cap on long-term yields, rather than pushing them up."
With money also set to continue to be poured into AI despite the recent warnings about its risks, "overall, we are still bullish globally on risk," she added.
BoE holds rates but signals inflation concern
The BoE had bolstered bets that it too could hike rates in the coming months. It predicted UK inflation will top 4% early next year and Governor Andrew Bailey explicitly warned that a continuation of the Iran war may require tighter policy.
Its decisionmakers had voted 6-3 in favour of keeping their finger off the rates trigger for now, but they paused all the BoE's active sales of UK government bonds for the next six months following a months-long global debt market selloff.
The BoE's rates "decision makes clear what we already knew: that the prospect of a November rate hike will depend entirely on energy prices," James Smith, developed markets economist at ING, said.
If it does happen, it would be an "insurance hike", he added.
Money markets now point to a more than 80% chance of a quarter-point BoE rate increase in November, potentially the first of four over the next year.
World shares and dollar move after Fed and BoE decisions
World shares shuffled higher and the dollar nestled at a seven-week high on Thursday, after the U.S. Federal Reserve's first interest rate hike in more than three years and a dip in oil prices helped calm a global bond market selloff that has rumbled for months.
Focus was also on the Bank of England (BoE) as it held UK rates steady but also sounded the alarm on inflation given the pressures of energy prices. The Bank of Japan, by contrast, is all but certain to lift interest rates on Friday.
Both Europe's main share markets and Wall Street futures prices were 0.4%-0.8% stronger. A 3% drop in oil prices meant Brent was still above $100 a barrel, but the Fed's rate move added to the sense that central banks are now getting the jump on inflation.
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