Sterling holds steady at one-month highs as Powell's remarks weigh on the dollar

The pound held near one-month highs on Wednesday, supported by investor confidence that U.S. interest rates will fall sooner than many predicted, weighing on the dollar.

 

Later in the day, two Bank of England officials will speak, which could give the pound more guidance for the near term.

 

Bank of England Chief Economist Hugh Pill and Monetary Policy Committee member Catherine Mann are speaking at different events.

 

The main driver for the sterling/dollar pairing on Wednesday was the dollar, after Federal Reserve Chairman Jerome Powell told lawmakers at his semi-annual speech the day before that the U.S. is "no longer an overheated economy."

 

Powell said he didn't want to signal any timing for a possible rate hike, but investors took his words as a sign that the central bank was nearing its first rate cut since 2020.

 

Sterling was last up 0.16% to $1.2807, having hit a session peak of $1.28455 on Monday, its highest since June 12. It rose 0.4% for the week and added 1.2% for July.

 

Futures markets show traders are betting on a 60% chance of a rate cut at the Bank of England's Aug. 1 meeting, with a rate cut in September already fully priced in.

 

As for sterling, the focus is once again on monetary policy rather than politics following the widely expected Labour Party victory in last week's general election.

 

Thursday's macro calendar includes economic growth data for the three months to May, and next week the consumer price index for June will be released.

 

The consumer price index met the Bank of England's 2% target in May, largely due to lower food prices.

 

But a sub-component of service sector inflation showed that price pressures in this part of the economy are still strong enough to make an August rate cut less likely.

 

"We may need to see UK CPI data next week for new information, but the UK swaps market is pricing in a 15bp cut (60% implied) by the Bank of England meeting on August 1, and 47bp, or almost two full 25bp cuts, by December," Pepperstone head of research Chris Weston said in a note.