Article rewritten and expanded based on the original by Brigid Riley, published on MSN: https://www.msn.com/en-us/money/markets/dollar-steadies-as-investors-eye-fed-sterling-lifted-by-uk-gdp/ar-AA1Kvow7
Title: Dollar Holds Steady Ahead of Fed Decision as UK GDP Strengthens Sterling
Author: Brigid Riley | Adapted and expanded by AI Assistant
As global markets seek clarity from the U.S. Federal Reserve on its next monetary policy move, the U.S. dollar steadied in early trading while the British pound gained ground following unexpectedly strong UK GDP data. Investors remain cautious ahead of a series of key economic indicators, including inflation numbers out of the United States and monetary policy decisions from major central banks including the Fed, the European Central Bank (ECB), and the Bank of England.
The foreign exchange (forex) market is closely eyeing signals that could shape the direction of interest rates, monetary tightening, and a possible economic slowdown in the months ahead.
Key Developments in Forex Markets:
Dollar Stability Amid Fed Uncertainty
– In Asian trading on the reported day, the U.S. dollar index — which tracks the greenback against a basket of six major currencies — held near recent levels at approximately 102.12, showing little change and maintaining a mild upward bias.
– The foreign exchange market has shifted focus after the prolonged rally that saw the dollar gain significantly amid aggressive Federal Reserve rate hikes.
– Market participants appear to be waiting for fresh cues from both economic data and central bank meetings before placing major bets on the dollar.
– The Federal Open Market Committee (FOMC) is widely expected to leave rates unchanged at its upcoming meeting, marking a departure from the 10 consecutive rate hikes that began in March 2022.
– However, Jay Powell’s post-meeting comments will be pivotal. Traders will be looking for any hints about whether the Fed may resume tightening policy in July or whether they feel that inflation has cooled sufficiently.
– Current pricing in the Fed funds futures market suggests that traders are seeing around a 60 percent chance for another rate increase in July, according to CME FedWatch data.
ING Bank analysts, in a recent note, suggested that the Fed might shift away from forward guidance and instead lean on incoming data to guide future decision-making. According to ING:
“We’re not convinced the dollar rally is resuming… It’s the return of data-dependence in policy that should favor range trading in FX this summer.”
This commentary reflects a broader market sentiment that the era of central banks offering crystal-clear forward guidance may be coming to an end.
British Pound Rises on Better-than-Expected GDP
– Sterling climbed to a one-month high of $1.2606 after UK economic data showed a surprising rebound in growth.
– Britain’s GDP expanded by 0.2 percent in April following a 0.3 percent contraction in March. Economists had forecast zero growth, so the modest expansion exceeded expectations.
– The pound earlier reached a high of 88.35 pence per euro — also the strongest level against the common currency in nearly a month.
– Analysts interpret the stronger GDP figures as bolstering the case for the Bank of England to continue raising interest rates.
– UK inflation remains persistently high, currently sitting at 8.7 percent. Markets now fully price in a 25-basis-point hike from the BoE at its June 22 meeting, with an additional hike in August likely.
“The stronger-than-expected GDP data adds a layer of confidence that the UK economy is slightly more resilient than feared,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets. “This keeps the Bank of England on track for more tightening.”
Euro Subdued Despite Broad Risk Appetite
– The euro traded just under $1.0760, with modest movement as investors kept their powder dry ahead of the European Central Bank decision.
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Read more on EUR/USD trading.