Dollar Holds Steady Ahead of US Federal Reserve’s Decision

In anticipation of the Federal Reserve’s policy meeting outcome, the dollar remained relatively stable on Wednesday. Meanwhile, the pound faced a notable setback, plunging to its lowest point in four months due to an unexpected deceleration in UK inflation.

The Federal Reserve is widely anticipated to maintain its current interest rates, resting between 5.25% and 5.50%. However, market observers are eagerly awaiting any indications regarding the central bank’s future plans. The Fed has raised rates four times since December 2021, but with signs of global growth slowing and trade tensions brewing, some analysts predict a potential pause in the tightening cycle.

According to the CME FedWatch tool, futures markets are currently pricing in a 30% likelihood of a rate hike in November or a slightly higher 35% chance in December.

Dollar Index Holds Above 105 as Sterling Slumps to Multi-month Low

The dollar index, which gauges the greenback’s performance against a basket of six major currencies, held steady at 105.00, hovering near its highest point since July.

Conversely, the pound slipped by 0.24% to $1.2363, marking its lowest value since May 30. This decline followed the release of data revealing a more significant-than-expected ease in UK inflation during August.

In August, the annual Consumer Price Index (CPI) dropped to 6.2%, down from July’s 6.9%, falling below the anticipated consensus forecast of 6.8%.

This lower inflation figure has cast uncertainty over whether the Bank of England (BoE) will proceed with its expected rate hike on Thursday. The BoE has executed 14 consecutive rate hikes since December 2021, propelling rates to 4.75%, the highest level witnessed since 2009.

Currently, money markets are nearly evenly split, estimating a roughly 50-50 chance that the BoE will opt to maintain current rates this week, compared to a mere 20% chance on Tuesday.

 

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