September 25, 2023

Dollar Relaxes, Pound Rises Before Bank of England Meeting

As expected, the Federal Reserve raised its baseline funds rate by 75 basis points. Due to this, the fund rates were in the 3.75–4% range on Wednesday.

There was an immediate drop in the value of the U.S. Dollar. The decrease was brought on by hints in the Fed’s announcement that further raises would be less substantial.

However, following some remarks from Chair Jerome Powell, the dollar regained momentum. Powell said that future increases in borrowing prices are necessary to combat inflation.

Data Indicate That the Fed Will Raise Its Final Interest Rates

According to Powell, incoming statistics since the last meeting point to higher final interest rates than initially predicted.

Powell told reporters that it was too soon to consider halting since work was still to be done. Powell’s hawkish rhetoric shattered expectations of a shift to a less aggressive approach. In early Asian trading, the dollar reached a week high against the euro, reaching $0.9810.

However, the Dollar lost momentum during the day and traded at $0.983.After the significant swings yesterday, according to Alvin Tan, there has been a modest retreat in the Dollar. Tan is the head of RBC Capital Markets’ Asian F.X. strategy.

According to Tan, the Fed prioritizes reducing inflation above promoting economic development. Additionally, he emphasized that the central bank would continue to tighten. After reaching a peak of 112.19, the U.S. Dollar index decreased by 0.214%, ending at 111.880. This was its highest level in seven sessions.

The Dollar’s Slight Decline Is Not Expected to Endure for Very Long

According to Citi analysts, the Fed chair’s strong hawkish signal dashes early expectations of a dovish swing. These are the market professionals who support maintaining long positions in Asian markets for the U.S. currency.

The experts continued by saying that this would boost confidence even further. This is because of the widespread belief that the Federal Reserve’s monetary policy will soon begin to vary from that of its counterparts worldwide. The Dollar value is likely to rise as risk assets fall due to the continued tightening of financial conditions.

The British Pound Rose Just Before the Bank of England Policy Meeting

The Pound, during the most recent trading session, was $1.1412. On the day before the Bank of England meeting, this represented a gain of 0.20 percent. The central bank is anticipated to increase interest rates during the session. The hike is expected to be three-quarters of a percentage point or 3%. Since 1989, this rate hike will be the biggest.

An analyst from the Commonwealth Bank of Australia, Kim Mundy, offered some insight. She was concerned that the Bank of England would continue to tighten while increasing it by 50 basis points. She continued by saying that market participants would see a 50-basis point increase as “dovish.” She claims that this might result in a drop in the sterling.

 

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