Sterling falls as dollar gains ahead of Fed data

The pound sterling slipped on Wednesday as the dollar strengthened, with investors anticipating the release of the Federal Reserve’s preferred inflation gauge on Friday. Sterling was down 0.2 per cent to $1.2661, maintaining a steady range observed over the past two weeks.

The pound edged 0.1 per cent lower to 84.37 pence against the euro, recovering slightly from a two-year low of 84.40 pence reached on June 14 following French President Emmanuel Macron’s announcement of a snap parliamentary election, which unsettled European markets.

Market focus remains on US personal consumption expenditure inflation data scheduled for Friday, which will influence Fed policy and could prompt volatility in currency markets.

Despite recent fluctuations, the pound has shown resilience this year, declining only 0.4 per cent against the dollar, compared to a 3 per cent drop for the euro and a 13 per cent decrease against the yen.

Anticipation that the Labour Party might secure a significant majority in the upcoming July 4 general election, potentially stabilising British policymaking, has supported sterling. However, concerns linger among economists and investors about potential risks to UK financial markets, given Labour’s ambiguous stance on fiscal policies.

Joe Tuckey, head of FX analysis at Argentex, emphasised the contrasting fiscal approaches between Labour and recent government actions led by Liz Truss, noting that this dynamic favours the pound. Nonetheless, Tuckey underscored that the Bank of England’s interest rate decisions will be critical for sterling’s trajectory through the remainder of the year.

The dollar index, which measures the currency against six major peers, showed a slight gain of 0.2 per cent, reaching 105.88.

Attribution: Reuters.