Fed Relief Fails To Spur Sterling Buying, Pound To Dollar Rate Held Close To 1.25
![](https://investmoneyuk.com/wp-content/uploads/2024/05/pound-rate-today-2-m.jpg)
![Fed Relief Fails to Spur Sterling Buying](https://images.exchangerates.org.uk/img/pound-rate-today-2.jpg)
Pound Sterling was, however, blocked below 1.2550 and retreated to 1.2510 ahead of Wednesday’s New York open.
With position adjustment ahead of next week’s Bank of England policy decision and another key US data release on Friday, the Pound will find it difficult to make gains in the near term.
The Pound was unable to make wider headway with the OECD downgrading of the UK outlook sapping confidence.
The OECD lowered its 2024 GDP growth forecast to 0.4% from 0.7% and expects growth of only 1.0% in 2025. According to the OECD, the UK is likely to be the weakest economy within the G7.
The dollar was hampered by another round of suspected intervention by the Bank of Japan to support the yen.
Sharp USD/JPY losses pulled the lower and there was an element of relief that the Federal Reserve guidance was not even more hawkish.
The Federal Reserve held interest rates at 5.5% following the latest policy meeting, in line with consensus forecasts and with a unanimous vote.
Fed Chair Powell stated that the central bank had not secured the reassurance it needed to justify an early cut in interest rates and the process will take longer than expected earlier in the year.
Powell was still hopeful that the restrictive monetary policy would bring inflation back to target.
Importantly, he also stated that it was unlikely that interest rates would need to be increased which triggered an element of relief.
ING commented; “The dollar closed yesterday’s FOMC day lower, as it had done for the three prior FOMC meetings. We and the market were a little surprised that there was no further assessment of the strong US activity data or particularly the high inflation data.”
ING noted the importance of forthcoming data; “The Fed’s nod to the recent run of stronger US data was a soft one at last night’s FOMC meeting, and it was clear that the Powell Fed would love to cut rates given half a chance. This has taken the steam out of the stronger dollar and puts the ball fairly back into the court of the US data calendar – especially tomorrow’s jobs report.”
MUFG noted that the US data was mixed with further evidence that the labour market overall is softening. It also considers that the inflation data is not as threatening as indicated by the recent official data.
At this stage, markets only expect one interest rate cut during 2024 and MUFG still sees little immediate need to cut interest rates.
Nevertheless it added; “We certainly didn’t get the sense that this was a communication consistent with just a little over one rate cut this year, as is currently priced.”
On a medium-term view it commented; “we have maintained the view of the dollar weakening into year-end as the Fed cuts rates by more than current market pricing. There are three payrolls and CPI reports before the July meeting making that still a very plausible meeting for the first rate cut.”
In this context, it expects the dollar will lose ground by year-end.
Danske Bank has been expecting three rate cuts this year, but this is under review.
According to the bank; “we have been calling for three 25bp rate cuts in 2024, starting from June. While nothing in Powell’s comments heard today made us less confident in our view, we are currently evaluating the call in light of recent data, and will discuss possible revisions next week after April NFP data.”
Source link