**Pound to Dollar: Sterling Lifts After Fed’s ‘Pump and Dump’ Dollar Move**
*Adapted from Adam Solomon, PoundSterling Live*
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The British pound rebounded sharply against the US dollar following a volatile week defined by the Federal Reserve’s latest policy announcement and its aftermath in currency markets. Sterling, which came under pressure earlier in the week and briefly slumped to multi-month lows, surged above 1.27 against the greenback as markets digested both the Fed’s rate outlook and a reappraisal of economic conditions on both sides of the Atlantic.
Central to this sudden shift in GBP/USD was what analysts are calling the Fed’s ‘pump and dump’ move — a dramatic strengthening of the dollar on initially hawkish signals, followed by a swift reversal as traders interpreted Federal Reserve Chair Jerome Powell’s comments as ultimately still dovish in tone.
### The Fed’s FOMC Meeting: Setting the Stage
At the crux of the GBP/USD volatility was the Federal Open Market Committee (FOMC) policy meeting. While US interest rates were left unchanged at their 5.25 to 5.5 percent range, Fed officials released updated economic projections, often referred to as the ‘dot plot’, which hinted at only one possible rate cut before the end of 2024 instead of the previously-expected three. The immediate market reaction was:
– A surge in US dollar buying, as markets priced in a more hawkish Fed.
– US yields rose, supporting the dollar across major currencies.
– Sterling fell sharply as a result.
The dollar index (DXY) rallied, and GBP/USD touched lows beneath 1.27, with some investors bracing for further downside if US rates stayed higher for longer. However, this move would prove to be short-lived.
### Powell’s Press Conference: The Hawkish Signal Fades
Following the publication of the Fed’s projections, Fed Chair Jerome Powell’s press conference struck a markedly softer tone. Powell acknowledged the progress made in reducing inflation, noted softer-than-expected inflation prints in recent months, and suggested the risks of keeping rates too high for too long were rising for the US economy.
Analysts and traders recalibrated their expectations:
– Many interpreted Powell’s messaging as more dovish than the updated dot plot suggested.
– The prospect of rate cuts in 2024 was not entirely off the table.
– Markets responded quickly to the double-take in messaging, unwinding some of the dollar’s rapid gains.
This triggered what currency strategists characterized as a ‘pump and dump’ in the dollar:
– The dollar’s initial rally reversed as traders positioned for the possibility of Fed easing sooner than implied by the dot plot.
– GBP/USD rebounded, as did other major currencies such as the euro and yen.
### Sterling’s Bounce: Recovery Driven by Dollar Weakness and UK Factors
The British pound’s resilience after the Fed’s events stands in contrast to its earlier weakness. Several key factors supported its fundamental position:
#### 1. **Dollar Weakness After Fed Shift**
– As traders sold off the dollar post-Fed, high beta currencies like the pound benefitted.
– GBP/USD rose back above 1.27, regaining lost ground of the previous days.
#### 2. **Market Focus on Bank of England**
– Speculation increased regarding the Bank of England’s own policy path.
– UK inflation and economic data would likely play an important role in shaping near-term pound performance.
#### 3. **Economic Data Flows**
– UK GDP figures released midweek came in above expectations, offering hope the UK economy could avoid a near-term recession.
– US economic data hinted at modest slowing, with inflation cooling slightly, which increased expectations for possible Fed easing.
#### 4. **Sentiment and Positioning**
– Some analysts suggest excessive bearishness had built up against the pound, setting up for a corrective rally.
– Positioning
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