(MENAFN) On Wednesday, the pound sterling broke through the USD1.3 barrier for the first time in a year, buoyed by expectations of an economic recovery with the Labour Party poised to take power in the UK and stable inflation at the bank of England’s 2 percent target. Meanwhile, the U.S. dollar broadly weakened following a brief rebound spurred by stronger-than-expected retail sales data, as traders shifted their focus to the potential for the Federal Reserve to cut interest rates by September.
The New Zealand dollar also saw gains, rising by 0.35 percent to USD0.6071, despite inflation data falling short of expectations. The persistent rise in domestically driven inflation in the second quarter bolstered the currency, even as futures markets maintained predictions for around three interest rate cuts by the Reserve Bank of New Zealand this year.
In the broader currency market, the dollar’s gains were short-lived despite positive retail sales data on Tuesday, which highlighted strong consumer demand and improved economic growth prospects in the U.S. Against the U.S. dollar, the euro rose by 0.06 percent to USD1.0906, and the Australian dollar edged up by 0.1 percent to USD0.6740. Consequently, the dollar index, which tracks the performance of the U.S. currency against six major currencies, dipped slightly to 104.19.
Market sentiment, as reflected by the CME FedWatch tool, indicates traders are anticipating the U.S. central bank will implement interest rate cuts starting in September, with an expectation of more than 60 basis points reduction by year-end. Meanwhile, the Japanese yen remained stable at 158.34 per dollar as traders anticipated potential intervention by Japanese authorities to support the currency. Data from the Bank of Japan suggested that Tokyo might have spent 2.14 trillion yen (USD13.5 billion) on intervention last Friday, with a total suspected expenditure of nearly 6 trillion yen over the past week, including Thursday’s interventions.
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