Pound sterling surged to around 1.3250 against the US dollar Following the Fed’s big rate decrease and prospects of more policy easing.

The pound sterling (GBP) recovers intraday losses following the Federal Reserve’s (Fed) policy statement, gaining above 1.3200 against the US dollar (USD) in Thursday’s London session. The value of the British pound expected to remain volatile ahead of the Bank of England’s (BoE) policy meeting at 11:00 GMT.

The BoE anticipated to keep interest rates unchanged at 5% after deciding for a decrease in August, as central bank policymakers remain cautious about inflation’s sustained return to the bank’s 2% target. Out of the nine members of the Monetary Policy Committee (MPC), BoE external member Swati Dhingra and Deputy Governor Dave Ramsden projected to vote for interest rate cuts for the second time in a row. The rest of the MPC is likely to support retaining rates at current levels.

Investors focused on the BoE policy meeting, with markets expecting the UK central bank to keep interest rates unchanged at 5%.

Core inflation, which excludes volatile items, rose to 3.6% in August, exceeding market expectations. Services inflation, a key indication for BoE officials, increased dramatically to 5.6% from 5.2% in July.

Although the BoE Interest rates widely expected to remain stable, so investors will focus on guidance for the rest of the year. Currently, financial market participants anticipate that the BoE will decrease interest rates once more at any of its remaining policy meetings.

Daily market movers: Pound Sterling outperforms US Dollar on strong Fed dovish wagers.

The pound sterling rises to almost 1.3250 against the US dollar, which falls substantially on increased speculation that the Fed’s policy-easing cycle will be deeper than previously thought. The US Dollar Index (DXY), which measures the value of the dollar against six major currencies, has fallen from a five-day high of 101.50.
The Fed decreased interest rates by 50 basis points (bp) on Wednesday, signaling that the central bank  optimistic that inflation will fall to its target of 2%, but is increasingly concerned about weakening labor market conditions. Fed Chair Jerome Powell dismissed fears that the US economy will face a recession: “I don’t see anything in the economy right now that suggests that the likelihood of a recession,” he said. He continued: “you see growth at a solid rate, you see inflation coming down, and you see a labor market that’s still at very solid levels.”

Fed officials expect the federal funds rate to reach 4.4% by the end of the year, implying that interest rates will be slashed by another 50 basis points. According to the CME FedWatch tool, the probability that the Fed will reduce interest rates The probability of a 25-bps rate drop to 4.50%-4.75% in November is 65.6%, with the balance favoring a 50-bps cut.

Citi analysts expect the Fed to reduce interest rates by 50 basis points again in November. “

Citi analysts expect the Fed to reduce interest rates by 50 basis points again in November. “Powell stated several times that today’s 50bp decrease is a ‘promise’ to not fall behind the curve, implying that the threshold for future big rate cuts is relatively low. We continue to view risks as balanced, with a more rapid softening of labor market indicators and a more aggressive pace of rate decreases.
During Thursday’s US session, investors will pay attention to the Initial Jobless Claims data for the week ending September 13. Individuals receiving jobless benefits for the first time are predicted to remain stable at 230,000.