Financial News (North America) News The pound rose to its highest level in more than two years, continuing a global rally led by expectations that the Bank of England will ease monetary policy less than the Federal Reserve.#Market Outlook for the Second Half of 2024#
On Friday, as of press time, the pound rose 0.81% against the U.S. dollar, reaching $1.31933.Hits highest since March 2022. this oneThe latest gains came after Federal Reserve Chairman Jerome Powell said the U.S. central bank should start cutting interest rates, further reinforcing the view that the two countries’ economic prospects will continue to diverge.
(GBP/USD exchange rate trend chart, source: FX168)
“Now is the time to adjust policy,” Federal Reserve Chairman Jerome Powell said, a clear sign that U.S. interest rates are about to fall.
Powell delivered these prepared remarks to delegates at the Jackson Hole Economic Symposium, which effectively opened the door to a rate cut next month.
However, a rate cut in September is nothing new; what is new is that the marketMarkets have already signaled that the Fed is preparing to become more committed to further rate cuts in the coming months.。
“The cooling in labor market conditions is clear,” Powell said. “The labor market appears unlikely to be a source of rising inflationary pressures in the short term.”
This is a clear signal that the Fed is now willing to defend growth to ensure job losses are minimized in the coming quarters. This will involve policy easing, which could boost risk assets such as stocks and sterling.
“Now is the time to adjust policy. The way forward is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell said.
“As we make further progress on price stability, we will do everything we can to support a strong labor market,” he added.
The comments raised the possibility of a 50 basis point rate cut in September, a step up from the 25 basis point hike that Powell was considering before speaking. This rise in expectations explains the sell-off in the US dollar.
“The Fed must cut interest rates by 50 percentage points in September to avoid a recession,” said Nigel Green, chief executive of deVere Group. “Consumer confidence is wobbly, spending is slowing and corporate earnings are under threat. The Fed can’t tiptoe around these warning signs with a quarter-point rate cut. It’s simply not enough.
However, ABN Amro economist Rogier Quaedvlieg said that despite the relatively dovish tone, he still expected a 25 basis point rate hike as the overall situation continued to allow for a gradual easing cycle.
He said continued volatility is expected as markets flip between expectations for a 50 basis point rate hike or a more modest 25 basis point rate hike, especially given there is another set of inflation and employment data ahead of the September decision. Data needs to be considered.
Dominic Bunning, head of G-10 FX strategy at Nomura Securities, said: “We believeThere is room for further gains in the pound over the coming weeks。」
Despite a tight decision by the Bank of England to cut interest rates in August, the UK economy’s resilience and inflation remain stubborn.Prospects for further interest rate cuts in the future become uncertain. Bank of England official Katherine Mann said wage growth remained a problem, underscoring the market’s cautious expectations.
Money market traders expect the Bank of England to cut interest rates by less than two quarter-points in 2024, while the Federal Reserve is expected to cut rates by about a percentage point.
Bank of England Governor Bailey said, “I think we are now lowering our assessment of the persistence of intrinsic inflation. It is too early to declare a victory over inflation. We are cautiously optimistic that inflation expectations will be better anchored.” The second-round effect of inflation appears to be smaller than we expected, and the economic cost of continued lower inflation appears likely to be lower than in the past. Inflation expectations appear to be better anchored, with UK inflation showing less persistence than expected. Policy settings need to remain restrictive long enough that future policies will remain stable.
This isA significant rebound for the pound. In the second half of 2022, the pound fell to record lows due to chaos in the British bond market.
The rally attracted inflows from hedge funds, asset managers and other speculative market participants, who pushed their net long positions to an all-time high in mid-July (CFTC data from 1999).
Bunning said that although this position has turned short in recent weeks, it is still an additional factor driving the pound higher.
He added: “The relative resilience shown in the data suggests that consecutive rate cuts are extremely unlikely.” He mentioned that on August 22, UK private sector companies reported their strongest growth in four months.
At the same time, U.S. employment growth data released on August 21 suggested that the labor market may be far less strong than previously reported, putting pressure on the Federal Reserve to cut interest rates in September.
Neil Jones, managing director of TJM Europe, said: “The pound is now the currency of choice to express bearishness against the dollar.”
Meanwhile, emerging market stocks and currencies rallied sharply as Federal Reserve Chairman Jerome Powell’s comments that it was time to adjust monetary policy drove a broad rally in risk assets. The MSCI Emerging Markets Index recovered from intraday losses and turned higher, with the Mexican peso and the South African rand climbing at least 1.2%, leading the gains in developing country currencies. The dollar index fell against a basket of currencies after Powell spoke at the annual Jackson Hole symposium, while an index of developing country currencies rose 0.2%.