Dollar extends post-FOMC rebound; sterling dented by fiscal worries
The U.S. dollar rose on Friday, extending its rebound against most major currencies, as traders reassessed the near-term outlook after the Federal Reserve cut interest rates this week but signaled that further easing would proceed only gradually.
The U.S. Dollar Currency Index, which tracks the greenback against six major peers, was up 0.3% at 97.653 on Friday. The gauge, which fell 1% on Monday and Tuesday on expectations the Federal Reserve might flag a rapid series of rate cuts, was nearly flat for the week.
On Wednesday, the Federal Reserve delivered an expected rate cut but signaled little urgency to lower borrowing costs quickly in the coming months. The Fed’s rate forecast or the so-called “dot plot” showed projections of two more rate reductions this year.
“It’s really a week of two halves,” Marc Chandler, chief market strategist at Bannockburn Forex, said.
“The votes, the actual dots, were not as dovish as the statement and the concerns about the labor market suggested,” Chandler added.
With the dollar having come under selling pressure in the days before the Fed decision, the U.S. currency may have room to rebound further.
“What we’re telling our clients is that this is just a counter-trend move. If you have to sell dollars, you’ll have a better level shortly,” Chandler said.
Sterling slide
Sterling fell on Friday after Britain’s borrowing surged past official forecasts, further complicating the country’s fiscal outlook, while the yen firmed after the Bank of Japan’s decision to hold rates steady revealed divisions on the board.
The pound was one of the worst performers among G10 currencies, mirroring investors’ concerns that British finance minister Rachel Reeves may not be able to keep her budget under control.
The currency was down 0.6% to $1.347, heading for its biggest two-day drop since late July.
In a volatile session after the BOJ decision, which saw the board maintain interest rates at 0.5%, the yen surged initially but later pulled back, leaving the dollar down about 0.04% against the Japanese currency at 147.93 yen.
Source: Reuters
