The Pound recovers against a weaker US Dollar

Daily Currency Update

Yesterday, we saw the US Dollar weaken following a downbeat US Treasury yield. Despite comments from US Federal Reserve Chair Jerome Powell, dampening expectations of an interest rate cut, the focus of the central bank is to maintain and monitor the inflation movement to 2%. The US Dollar Index holds steady sitting slightly above 104.00 after a two-day streak of momentum.

The Federal Reserve Official Patrick Harker said yesterday that the central bank made the right choice last week to maintain steady interest rates. Harker also stated that the current disinflation in the US, labour market improvements, and resilient consumer spending are all reasons why the Federal Reserve could stick to a soft landing and hold out on rate cuts.

The Goods Trade Balance for December will be featured in the US economic calendar and the US Treasury is expected to hold a 10-year note auction later today which could provide further direction for the dollar. The Pound strengthens against the US Dollar and recovers some losses in the early European session as Robust PMI data, and the UK’s construction services sectors have rebounded.

Strong services and construction PMIs rose to 48.8 and were better than market forecasts and previous readings. The UK is still at risk of a technical recession, which might lead to Bank of England officials shifting to a more dovish interest rate stance.
The influence on UK interest rates may provide a clearer direction of the Pound against the Dollar. Investors bear in mind that the US Federal Reserve is still holding the most proactive stance compared to the European Central Bank and Bank of England after the strong data released last week along with comments from Jerome Powell on Sunday.