Pound Drops Amid Strong Dollar and Key Comments From Fed Chair Warsh
Market Movements and Influencing Factors
By Amanda Cooper
Sterling Performance and Recent Trends
LONDON, July 1 (Reuters) - The pound fell for the first time in a week on Wednesday in the face of a robust dollar, which got a lift from a rise in U.S. Treasury yields ahead of jobs data, while markets were also awaiting comments from new Fed Chair Kevin Warsh.
Sterling was down 0.23% at $1.3234, having risen for the past four days, marking its longest stretch of daily gains in a month.
The pound closed out a volatile June with a loss of 0.2%, bringing the decline over the first half of the year to 1.6%, making this its weakest start to a year since 2022, when it fell nearly 10% from January to June.
Political Uncertainty and Economic Outlook
Another upcoming change in British leadership, with Labour Prime Minister Keir Starmer stepping down, has put investors on edge about how Andy Burnham, his likely replacement, will revive the British economy without further straining the government's already stretched finances.
Dollar Strength and Currency Comparisons
A resurgence in the dollar, thanks to the strength of the U.S. economy and its stock market, has played a large role in depressing sterling and other currencies. Against the euro the pound rallied throughout the second quarter, posting a rise of 1.4% to trade around its strongest since last August.
Monetary Policy and Central Bank Actions
Bank of England Rate Expectations
Expectations for the Bank of England to raise interest rates this year have moderated since the hostilities in the Gulf have subsided, which has brought the oil price back to pre-war levels. Money markets show traders see a 90% chance of a BoE hike by the end of this year. At one point recently, as many as three hikes were priced in.
The BoE meets later this month to discuss monetary policy, and economists predict there will be no change in interest rates.
Key Economic Events Impacting Currencies
The big risk events for currencies including sterling this week include U.S. monthly employment data on Thursday, which carries the potential to either cement or dispel mounting expectations for the Federal Reserve to raise U.S. rates as early as this month.
Central Bankers' Comments and Market Reactions
Fed Chair Warsh's Influence
Central bankers from around the world are in the Portuguese town of Sintra this week for the European Central Bank's annual forum. The Fed's Warsh will take part in a panel and later address the gathering on Wednesday. Given his preference for shorter statements and less communication from policymakers, investors will scrutinise his words for any sign of what might happen with U.S. rates in the coming months.
BoE Governor Andrew Bailey's Role
BoE Governor Andrew Bailey is also due to appear on Wednesday.
"Bank of England Chief Andrew Bailey may be the man to watch considering that it's the BoE that is most stuck in the middle with policy and has thus far been rather opaque regarding policy going forward," Caxton strategist David Stritch said.
(Reporting by Amanda Cooper; Editing by Hugh Lawson)
