The British pound hovered around $1.339 on Thursday, near an eight-week low, as renewed strength in the U.S. dollar weighed on the currency following reassurance from Washington that Fed Chair Jerome Powell would remain in his role.
The dollar index (DXY) climbed to a three-week high, driven by increased demand as investors unwound hedges against the greenback and repositioned in favour of dollar-denominated assets. The move followed comments by former President Donald Trump, who stated he had no plans to dismiss Powell, despite criticizing the Federal Reserve for moving too slowly on interest rate cuts.
“The removal of Fed Chair Powell would have been damaging for the dollar,” noted Sean Callow, market strategist at InTouch Capital Markets. Such a scenario could have driven down short-term yields in anticipation of a more dovish Fed leadership while adding risk and inflation premiums to longer-term U.S. debt, he explained.
Meanwhile, in the UK, investors are assessing mixed economic signals to gauge the Bank of England’s next steps on monetary policy. The labour market continues to soften, with payroll employment declining again, although revised tax data indicates the drop may be less severe than previously estimated. Unemployment edged up to 4.7%, while wage growth, although historically high, showed signs of moderating.
On the inflation front, June’s reading surprised to the upside at 3.6%, above the 3.4% forecast, adding further complexity to the Bank of England’s policy outlook. While slowing wage growth could support the case for rate cuts, persistently high inflation may delay any easing cycle. Markets continue to price in two rate cuts in 2025 but have slightly scaled back expectations amid the mixed data.
