NEW YORK, Aug 27 (Reuters) – Sterling climbed to its highest against the U.S. dollar in more than two years on Tuesday, while the greenback dropped to a more than one-year low after gains the previous session, as investors awaited key economic data this week and next.
Currency moves remained driven by the prospect of upcoming U.S. 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 (bp) cut instead of 25.
The rate futures market has attached a 37% probability that the Fed will raise rates by 50 bps, unchanged from late on Friday, according to LSEG calculations. About 106 bps of cuts in 2024 are priced in by futures traders.
“(Fed Chair Jerome) Powell’s comments were ultimately seen as dovish in every way. Non-U.S. dollar stores of wealth such as crypto recovered a little bit too. So this is all perceived as a dovish follow-through from Friday’s Jackson Hole.”
Sterling has been one beneficiary of the weakness in the U.S. currency, and on Tuesday the pound hit its highest since March 2022 at $1.3246. It was last up 0.3% at $1.3226.
DOLLAR’S BIG MONTHLY DECLINE
The dollar index was down 0.3% at 100.53 , after earlier dropping to its lowest since July last year. For the month of August, the dollar has fallen 3.2%, on track for its biggest monthly decline since November 2022.
Investors are awaiting data on the preliminary estimate for gross domestic product in the second quarter, jobless claims, and personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge.
The euro gained 0.2% versus the dollar to $1.1181, just off Monday’s 13-month top.
“After a strong rally since early August, it looks like euro/dollar could be due some consolidation,” Chris Turner, global head of markets at ING, said in a note to clients.
“The run-up in oil prices on the back of increased Middle East tension and Libyan supply challenges will not be helping.”
Elsewhere, the Australian dollar rose 0.3% to US$0.6791, 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 0.7% at 0.8414 franc .
Sign up here.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Alun John in London and Rae Wee in Singapore; Editing by Jamie Freed, David Evans, Helen Popper, Jonathan Oatis and Marguerita Choy
Our Standards: The Thomson Reuters Trust Principles.