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Forex - Dollar at 2-Year Highs after Fed; Sterling Eyed Before BoE

ForexAug 01, 2019 04:18AM ET
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Investing.com - The dollar rose to two-year highs on Thursday a day after the Federal Reserve delivered its first rate cut in over a decade amid weaker growth, but indicated that it was not the start of a new easing cycle.

Late Wednesday, the U.S. central bank cut rates by 25 basis points, the first such cut since 2008, in order to offset risks to the economy, including global trade tensions.

Fed Chairman Jerome Powell said in comments following the widely-anticipated move that it was a “mid-cycle adjustment to policy” rather than “the beginning of a lengthy cutting cycle”.

Traders still see one more rate cut this year, but Powell's remarks tempered expectations the Fed is prepared to lower rates well into next year.

"The comments by Powell were not particularly dovish, so this is confirmation that this is a small insurance cut," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"This outcome limits the dollar's downside from here. Rate cuts will be on the small side, but this still strengthens the case for a prolonged U.S. economic expansion, which is positive for the dollar long term."

The U.S. dollar index against a basket of six major currencies was at 98.63 by 04:10 AM ET (08:10 GMT) close to a two-year peak of 98.69 reached overnight.

The euro fell 0.33% to $1.1036, the lowest since May 16, 2017.

Against the yen the dollar rose 0.36% to a two-month high of 109.13.

Elsewhere in currency markets, sterling fell against the dollar toward a two-year low on the growing risk of a no-deal Brexit, but the focus will shift to a Bank of England meeting later on Thursday.

The BoE's Monetary Policy Committee is widely expected to vote 9-0 to keep rates on hold at 0.75%. But it is less clear how Governor Mark Carney will tackle the challenge posed by the prospect of Britain leaving the European Union without provisional trading agreements.

Sterling was down 0.34% at $1.2115, near a two-year low of $1.2101. Sterling tumbled 4.2% last month, its worst monthly performance since October 2016, due to growing speculation Britain will go through with a no-deal Brexit.

--Reuters contributed to this report

Forex - Dollar at 2-Year Highs after Fed; Sterling Eyed Before BoE
 

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