- The Pound Sterling refreshes a two-year high above the crucial resistance of 1.3300 against the US Dollar (USD) in Friday’s London session. The GBP/USD pair strengthens as the US Dollar faces severe selling pressure amid growing speculation that the Federal Reserve’s (Fed) policy-easing cycle will continue in the last quarter of the year. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides below the crucial support of 100.50 and is declining towards a year-to-date low of 100.21.
- The Fed kicked off its policy easing cycle on Wednesday with a larger-than-usual rate cut of 50 basis points (bps), pushing borrowing rates lower to 4.75%-5.00%. This bumper rate cut from the Fed was a clear signal that policymakers are more focused on restoring labor market health and are confident about inflation returning to the bank’s target of 2%.
- According to the CME FedWatch tool, the Fed is expected to cut borrowing rates further by 75 bps in the remaining two meetings this year, suggesting that there will be one more 50 bps rate cut. The tool also shows that the likelihood of the Fed reducing interest rates by 50 bps in November is at 43%, higher than the 37% recorded on Thursday. On the contrary, Fed policymakers see the federal fund rates heading to 4.4% by the year-end, a smaller reduction than the one that markets are pricing in.
- Going forward, the next trigger for the Pound Sterling and the US Dollar will be preliminary S&P Global PMI data for September, which will be published on Monday.
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