Fed's Bowman Cools Rate Cut Bets, Helps USD

File image of Michelle Bowman. Copyright and source: Federal Reserve.

The Pound is lower by a third of a per cent against the Dollar in midweek trade thanks to 'hawkish' signals from members of the Federal Reserve.

The Dollar is firm and "could well see big gains in the days and weeks ahead," says Martin Miller, a market analyst at Reuters. Miller says the Dollar index - a broader measure of USD performance - is in a bullish technical setup.

This would imply that the Pound to Dollar exchange rate faces further downside from 1.2646, where it is quoted at the time of writing. Euro-Dollar is lower by a similar margin at 1.0683.

The Dollar is bid ahead of potential euro-centric risks dominated by the weekend elections in France that could prompt the European Central Bank to cut interest rates further in the coming days. Analysts also say surprisingly strong Canadian and Australian inflation prints from the past 24 hours raising fears that global inflation is rebooting, which has pushed bond yields higher.

Several Federal Reserve officials have warned they won't be rushed into cutting interest rates this year, which adds to the pressure in bond markets and ultimately favours the USD.

"Fed officials remain hawkish," says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman. The divergence in interest rate policy between the U.S. (higher rates for longer) and the UK and Eurozone supports the Dollar.

Above: GBP/USD at daily intervals (top) and the Dollar index. Track GBP/USD with your own alerts, find out more here.

Federal Reserve policy setter Michelle Bowman said, "we are still not yet at the point where it is appropriate to lower the policy rate. Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy."

She also revealed that she is one of several Federal Reserve policy setters who sees no cuts this year, making her one of four Fed policymakers who think rates will remain unchanged.

According to projections released by the Fed on June 12, seven of her colleagues see one cut, and eight see two cuts.

"I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse," said Bowman.

The Fed's Lisa D. Cook was more inclined to entertain a potential cut, saying, "with significant progress on inflation and the labour market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy."

She added the timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks.

The market continues to see November as the most likely meeting for a cut, though there are 70% odds of a cut in September.