Pound Holds Steady Amid Dollar Weakness and Economic Data Anticipation

The British pound maintained its strength on Wednesday, nearing its one-year high against the U.S. dollar, which is pressured by expectations of Federal Reserve interest rate cuts. Currency movements are influenced by the dollar's performance, U.S. economic data, and comments from Fed officials, including Chair Jerome Powell.

The British pound held its ground on Wednesday, hovering close to the one-year high it achieved against the U.S. dollar the day before. This comes as the American currency faces pressure from heightened expectations of Federal Reserve interest rate cuts.

On Wednesday, sterling was largely unchanged, trading at $1.3025, just shy of Tuesday's peak of $1.3054—its highest level against the dollar since July 2023. The pound also remained steady against the euro, with the euro trading at 85.37 pence.

The slide in the dollar has been dominating currency markets recently, driven by investors increasingly betting on sharp interest rate cuts by the Fed this year. U.S. bond yields fell on Tuesday as markets positioned for these cuts, reducing the attractiveness of Treasuries and causing the dollar index to hit its lowest level this year.

Jane Foley, head of FX strategy at Rabobank, stated that the pound's performance against the U.S. dollar this week is largely due to dollar weakness. However, she highlighted that sterling remains the best-performing G10 currency this year, having risen about 2.3% against the dollar, boosted by a stable new government and better-than-expected economic growth.

Last week's data showed that Britain's economy recorded a second quarter of strong growth, recovering from last year's shallow recession. Investors were awaiting Wednesday's revisions to U.S. labor market data, which could cause significant swings in global markets.

The Bureau of Labor Statistics is set to release revised non-farm payroll numbers from April 2023 to March 2024 on Wednesday, using tax data. A weak non-farm payroll report on Aug. 2 had previously triggered a global stock sell-off and a bond rally amid concerns about the U.S. economy; thus, a downward revision could reignite these worries.

Adding to the anticipation, Fed Chair Jerome Powell is scheduled to speak on Friday at the closely watched Jackson Hole conference in Wyoming, which could also have potential market-moving implications. Meanwhile, the pound showed little reaction to data revealing that Britain's government borrowed more than expected last month, underscoring the challenging fiscal situation for new finance minister Rachel Reeves.

British public sector net borrowing reached 3.101 billion pounds ($4.04 billion) last month, marking the largest July borrowing total since 2021. (Editing by Jan Harvey)

(With inputs from agencies.)