While the global dollar spreads the red waiting for US inflation datathe pound hits its highest level in four months, boosted by comments from the Bank of England’s monetary policymakers, which have led markets to reduce bets on an interest rate cut in August.
The pound rose 0.12% to $1.2864, its highest level since early March, following statements by Bank of England officials that price pressures remain persistent. ECB chief economist Huw Pill said the timing of a rate cut was an “open question,” which alters forecasts of a easing cycle starting in August.
Sticky inflation is making the Bank of England hesitant to implement the first rate cut“despite evidence that a high interest rate environment has tightened monetary conditions and also made growth conditions more unfavourable,” said Jeff Ng, head of macroeconomic strategy for Asia at SMBC.
“In the short term, it may mean that the pound will firm up a bit given this potential delay in rate cuts,” adds Ng, who also expects a rate cut in the current quarter, although he sees a higher chance of it happening in the fourth quarter.
In the broader market, the US dollar is retreating, with the Australian dollar trading 0.16% higher at $0.6758, after earlier hitting its highest level since January at $0.6763. The euro is slightly inching higher at $1.0836, while the dollar is holding steady at $104.91 against a basket of currencies.
What data does the market analyze?
US inflation data is due out today, with core inflation expected to rise 0.2% month-on-month in June, bringing the annual figure to 3.4%. “The consensus is for a benign 0.2% rise in core CPI. We think that could also be the case,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
“This result will reinforce confidence that the FOMC will be able to cut rates fairly soon, so a 0.2% hike could push the dollar slightly lower if expectations of a cut in September increase,” Kong added, referring to the Fed’s Federal Open Market Committee.
Markets now price in more than 70% of the chance of a Federal Reserve rate cut in September, up from about the same a month ago, according to CME’s FedWatch tool. Fed Chair Jerome Powell said the U.S. central bank will make interest rate decisions “when and as” they are needed, rejecting the suggestion that a rate cut in September could be seen as a political act ahead of the November presidential election.
The New Zealand dollar, meanwhile, gained 0.2% to $0.6096, recovering some of the losses from the previous session, when it fell 0.7% following the Reserve Bank of New Zealand’s monetary policy statement. The yen remained adrift but remained under pressure from sharp interest rate differentials between the US and Japan, standing at $161.67 per dollar, close to its lowest level in 38 years.
Many Japanese private banks met with the Bank of Japan on Tuesday and called for the central bank to halve its monthly bond purchases around 2026. The Bank of Japan is expected to present a plan on how to reduce its massive bond purchases at its next policy meeting on July 30-31 as it gradually moves toward normalizing its monetary policy.
Source: Ambito
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