Daily digest market movers: Pound Sterling remains vulnerable as US Dollar advances
- The Pound Sterling refreshes two-week low at 1.2600 as the market sentiment remains downbeat and amid renewed US Dollar strength. The US Dollar Index (DXY), which measures US Dollar’s value against six major currencies, rises to a fresh two-week high around 104.20.
- The near-term demand for the US Dollar strengthens as inflation in the United States economy has remained sticky and the Federal Reserve (Fed) has upwardly revised its Gross Domestic Product (GDP) projections to 2.1% for 2024. On the contrary, inflation in other developed economies is decelerating at a faster pace, while the risk of a recession is also higher.
- On the domestic front, the Pound Sterling weakens after the BoE opted to keep interest rates on hold at 5.25% for the fifth time in a row on Thursday. Investors considered that the BoE is slowly turning dovish as two policymakers – Catherine Mann and Jonathan Haskel –, who supported hiking interest rates further in February’s meeting, voted to keep rates unchanged.
- Eight out of nine policymakers voted for keeping interest rates unchanged, except for policymaker Swati Dhingra who supported a rate cut. This was the first time since September 2021 that no MPC member voted for a rate hike.
- In the monetary policy statement, the BoE said that inflation is moving in the right direction but it is not at a point where interest rates can be lowered. The expectations for the BoE reducing interest rates from August boosted after Governor Andrew Bailey said: “I think it's reasonable that markets are 'taking the view' of two or three cuts this year, but I won't comment on timing.”
- Regarding the economic outlook, BoE Bailey said the economy is returning to the growth path after remaining in a technical recession in the second half of 2023.
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