(Bloomberg) -- The dollar declined heading into the Federal Reserve’s interest-rate decision. The British pound rose as traders pared bets on the Bank of England easing monetary policy further after officials cut rates, as widely expected, on Thursday.
- The Bloomberg Dollar Spot Index drops 0.7% after a rally on US election results the day before
- The Fed is expected to lower rates by a quarter-point
- Chair Jerome Powell will likely field a barrage of questions about what Trump’s return to the White House will mean for growth, inflation and borrowing costs as investors position for a slower pace of rate cuts
- “Along with higher risks of a trade war and higher anticipated fiscal spending, the probability of a faster return-to-neutral from the Fed is also being pared back,” said Sarah Ying, head of foreign-exchange strategy at CIBC Capital Markets
- Post-election, “markets are turning their focus now toward the Fed,” said Helen Given, a foreign-exchange trader at Monex. “Since a 25 basis point cut is all but baked in the cake, we’re seeing the dollar respond with some weakness”
- Applications for US unemployment benefits ticked up last week, remaining near average pre-pandemic levels
- President-elect Donald Trump is likely to allow Powell to serve out the remainder of his term, CNN reports, citing a Trump senior adviser
- GBP/USD rises 0.7% to 1.2973
- The Bank of England cut borrowing costs for the second time this year, but stopped short of signaling faster easing, warning that the budget could drive up inflation by as much as half a percentage point
- BOE officials said the UK bond selloff that followed last week’s budget announcement was exacerbated by investor positioning, a signal they believe the worst of the slide is over
- EUR/USD rose 0.6% to 1.0795
- German opposition leader Friedrich Merz said Chancellor Olaf Scholz should submit to a vote of confidence by early next week at the latest, paving the way for fresh elections as soon as mid-January
- EUR/SEK drops 0.8% to 11.5613; Riksbank cut borrowing costs by a half point for the first time in a decade, matching market expectations, and said that further easing in December and in the first half of 2025 are possible
- EUR/NOK down 1.3%
- Norway’s central bank kept borrowing costs at the highest level in almost 16 years and restated that it had no imminent plans for easing due to risks posed by a weak krone and higher business costs
- USD/JPY fell 1.1% to 152.98; Japan’s chief currency official Atsushi Mimura said authorities will take appropriate action against any excessive currency moves after seeing one-sided, sudden shifts
- AUD/USD rallies 1.5% to 0.6670, erasing Wednesday’s drop
- Some information comes from FX traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly
Reporting by Anya Andrianova and Vassilis Karamanis
