GBP/USD Fell 0.5% After A Stern Powell Berates The Market

Image: Pound Sterling Live.

The Dollar rose broadly after the head of the U.S. central bank sparked renewed expectations for further interest rate hikes as he expressed concern that inflation would remain too high over the coming months.

Federal Reserve Chair Jerome Powell was in no mood to entertain any consideration for interest rate cuts, reaffirming in a scheduled speech that rates might have to rise again.

Powell said the Fed "are not confident" interest rates are high enough to tame inflation and may not get much help from improvements in the supply of goods, services and labour.

"We are attentive to the risk that stronger growth could undermine further progress in restoring balance to the labor market and in bringing inflation down, which could warrant a response from monetary policy," he added.

The tone of the speech delivered at the IMF in Washington was more 'hawkish' than that of his post-Fed meeting address delivered a week earlier following another decision to keep interest rates on hold.

The decision prompted markets to reduce expectations for further hikes and bring forward bets for rate cuts, resulting in lower U.S. yields and a weaker Dollar.

But these developments can be considered to be inflationary and therefore at odds with the Fed's agenda, prompting Powell to push back quite forcefully.

"US10yr yields appear to have established a clear base around 4.50% following Powell’s sterner comments, implying that the DXY (the dollar index) has also found a near-term low just beneath 105," says Richard Franulovich, a strategist at Westpac.

The Pound to Dollar exchange rate fell half a per cent on Thursday to trade at 1.2230 at the time of writing. The Euro to Dollar exchange rate fell 0.40% to trade at 1.0660 at the time of writing.

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