LONDON/NEW YORK: Sterling climbed to its highest against the US dollar in more than two years on Tuesday, while the greenback slipped broadly after gains the previous session, as investors await key economic data this week and next.
Currency moves remained driven by the prospect of upcoming US interest rate cuts, which has pressured the dollar in recent weeks. Investors see a rate cut at the Federal Reserve’s September meeting as all but certain, with debate now focused on the possibility of a 50-basis-point cut instead of 25.
The rate futures market has attached a 29% probability that the Fed will raise rates by 50 bps, down from 37% late on Friday, according to LSEG calculations. About 100 bps of cuts in 2025 are priced in by futures traders.
Sterling has been one beneficiary of the weakness in the US currency, and on Tuesday the pound hit its highest since March 2022 at $1.3246. It was last up 0.3% at $1.3226.
“Sterling stands out because it made a new two-year high,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.
“The other currencies are consolidating. I would say currencies are nesting before the new leg up, or whether this is what would be the early stages of a dollar correction higher after a huge sell-off this month.”
The pound got support from the contrast between Friday’s remarks by Fed Chair Jerome Powell, which underscored market pricing for meaningful US rate cuts starting next month, and the more cautious comments of Bank of England Governor Andrew Bailey.
“(Bailey’s) comments stand to keep a wedge between US and UK rates, where money markets continue to price a shallower and slower easing cycle for the BoE,” Chris Turner, global head of markets at ING, said in a note to clients.
The dollar index was down 0.1% at 100.73, after dropping to an eight-month low on Monday. For the month of August, the dollar has fallen 3.3%, on track for its biggest monthly decline since November 2022.
The greenback dipped after data showed US house prices dipped 0.1% on a month-on-month basis after being unchanged in May. They increased 5.1% in the 12 months through June, the smallest year-on-year rise since July 2023,
Tuesday’s report also showed US consumer confidence rose in August. The Conference Board’ consumer confidence index increased to 103.3 this month from an upwardly revised 101.9 in July. The market showed little reaction to the data.
The euro was up a whisker on the dollar at $1.1170, just off Monday’s 13-month top.
One currency boosted by the surge in oil prices is the Canadian dollar, which rose against the US currency, having touched a five-month peak earlier in the session. The US dollar was down 0.2% at C$1.3458.
Elsewhere, the Australian dollar gained 0.1% to US$0.6782, not far from a one-month high of $0.6799 hit on Friday.
Against the Swiss franc, the dollar fell to its lowest since early January and was last down 0.5% at 0.8432 franc.