Investing.com – The US dollar rose on Thursday, recovering from more than a year’s low after the Federal Reserve announced an outsized rate cut, while sterling rose ahead of the Bank of England’s latest policy-setting meeting.
At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 100.410, after falling to a record low in the previous session in just over twelve months.
Major Fed Cut Confirmed
The latest rate-cutting cycle began on Wednesday, cutting rates by a hefty 50 basis points for the first time since March 2020 to a range of 4.75% to 5%.
Fed Chairman Jerome Powell said the risks between higher inflation and more weakness in the labor market are now balanced, and the central bank is likely to cut rates further as confidence grows that inflation will fall.
But Powell also said the bank had no intention of returning to an ultra-low interest rate regime as was the case during the pandemic, and that the Fed’s neutral rate will now be much higher than in the past.
“Where does the Fed’s decision leave the dollar,” ING analysts wonder in a note. “In our view, we are still in a softer position compared to most developed market peers. Powell sought to soften the easing of the excessive rate cut, but said it would be difficult to combat the perception that it was the easing in market prices that pushed the Fed over the line for the 50 basis point move. If the Fed is seen as unwilling to disappoint market expectations, investors may continue to favor the dovish side.”
Focus is on the release of the weekly data, for the latest clues on the health of the key labor market.
Sterling in the question ahead of the BoE meeting
In Europe, yields rose 0.3% to 1.3253 after rising to 1.3298 in the previous session, the highest level since March 2022.
The ECB meets later in the session and is expected to keep its key interest rate at 5% after starting easing with a 25 basis point cut in August.
“The inflation picture has simply not improved enough to justify further easing,” ING said.
The UK reached an annual rate of 2.2% last month, close to the bank’s medium-term target, but inflation in the services sector is rising at an annual rate of 5.6%.
traded 0.3% higher at 1.1149, not far from the previous session’s three-week high.
Last week, interest rates were cut for the second time this year, but there is some uncertainty about when the next step will be.
Inflation in the euro zone is still not as low as the ECB would like, Bundesbank President Joachim Nagel said on Wednesday. Interest rates must therefore remain high enough to resolve the price pressure.
Although inflation fell to 2.2% in August and may move closer to the ECB’s 2% target this month, it is likely to rise again towards the end of the year and reach around 2.5% by the end of 2024 % can come true.
Yen withdraws ahead of BOJ meeting
rose 0.3% to 142.75 as traders also lined up for unchanged local interest rates after a meeting on Friday.
The central bank is widely expected to leave rates unchanged, but could still signal future rate hikes based on an elevated inflation outlook.
Japanese also comes on Fridays.
was trading 0.2% lower at 7.0698, ahead of a decision by the People’s Bank of China on Friday. The expectation is that the central bank will leave this policy rate unchanged.
