Pound flat ahead of BOE, dollar holds fast to recent gains

By Alun John

HONG KONG (Reuters) – The dollar held onto recent gains on Thursday, helped by several U.S. Federal Reserve officials pushing back against suggestions they will slow the pace of interest rate hikes, while the pound was flat ahead of a Bank of England policy decision.

The BOE is expected to raise rates by an aggressive 50 basis points (bps) to 1.75%, the highest level since late 2008, but sterling was little changed in Asia trade ahead of the decision, due at 1100 GMT, at $1.2148.

The BoE has never raised the Bank Rate by a half point since it was made independent in 1997.

The dollar index, which measures the greenback against six peers, was holding firm at 106.37 having eked out small gains overnight. It is up around 0.5% this week, reversing the trend of the previous two weeks.

“The dollar weakened last week after the (policy setting) Federal Open Market Committee meeting because the market wanted to believe that the Fed was pivoting in a dovish manner because of slowing growth,” said Sim Moh Siong, currency strategist at Bank of Singapore.

“This week, there are a lot more FOMC speakers pushing back against this idea, all singing the same tune: ‘we are not done, and you should expect more rate hikes’,” he added.

San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari overnight voiced their determination to rein in high inflation, reiterating similar messages from other officials the day before.

A Reuters poll of analysts earlier this week found 70% thought the dollar was yet to peak in this cycle, even after the dollar index hit a two-decade peak in July.

According to CME’s FedWatch tool, the market is pricing in a 58% chance of a 50 bps hike at the Fed’s September meeting, and a 42% chance of a another massive 75 bps increase.

The Australian dollar was at $0.695 on Thursday, up 0.15% after gaining 0.46% the day before, trying to head back above the symbolic $0.70 level it fell from earlier in the week after seemingly dovish remarks from the central bank.

 

The euro was flat at $1.01635 and the Japanese yen, lost a little ground to 134.06 yen per dollar.

Bitcoin was up a touch at $23,000.