**Dollar Retreats From Recent Highs, Pound Under Pressure as Markets Eye Bank of England Decision**
*Adapted from the work of Amanda Cooper, Reuters*
The global foreign exchange market witnessed renewed volatility as the US dollar softened from recent six-week peaks, while the British pound struggled ahead of a pivotal Bank of England (BoE) rate decision. Currency traders evaluated fresh signals regarding the likely path of interest rates as the world’s largest central banks delicately balance inflation risks against signs of economic slowdown.
This comprehensive review delves into the recent moves across major currency pairs, unpacks what’s driving these shifts, and explores the expectations tied to central bank meetings amid persistent uncertainty on monetary policy.
**Dollar Eases After Recent Gains**
After a period of sustained strength, the US dollar index retreated from its highest levels since early May, as market participants weighed the prospects of when, and by how much, the US Federal Reserve might begin to cut interest rates. Earlier in the week, the dollar notched notable gains against other major currencies, buoyed by unexpectedly strong economic data and caution among Fed officials about moving too quickly to lower borrowing costs.
– On Wednesday, the US dollar index, which tracks the greenback against a basket of six top currencies, slipped by 0.2 percent in early European trading.
– On Tuesday, the index had touched 105.47, its highest level since early May, after robust US retail sales suggested continued consumer resilience.
– The greenback’s rally was supported by comments from Federal Reserve officials, such as Governor Adriana Kugler and San Francisco Fed President Mary Daly, who signaled the need for more evidence that inflation was retreating before considering rate cuts.
Despite recent gains, the dollar’s momentum appeared to fade, as traders began to lock in profits and awaited further policy clues from both the Federal Reserve and other major central banks.
**Fed’s Path Remains Uncertain**
The US Federal Reserve has maintained its benchmark rate at a 23-year high since July 2023, with Fed Chair Jerome Powell repeatedly stressing that officials need greater confidence that inflation is moving sustainably toward the 2 percent target.
– Fed projections currently anticipate only one rate cut in 2024, a reduction from the three cuts forecast at the beginning of the year.
– Market pricing, as reflected by CME’s FedWatch tool, indicates traders expect the first rate reduction in either September or November, and only around a 60 percent probability of two 25 basis point rate cuts by year-end.
– Persistent inflationary pressures, especially in services, and continued strength in the labor and retail sectors have complicated the outlook for monetary easing.
Williams, Barkin, and Bostic, other members of the Federal Open Market Committee (FOMC), have echoed cautious sentiment, underscoring the importance of allowing more time for inflation and growth data to clarify the trajectory.
**Pound Awaits Bank of England Verdict**
The British pound has been under pressure, hovering near its
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