SINGAPORE- The dollar was softer on Thursday after the Federal Reserve indicated interest rate cuts were likely later this year even as uncertainty around US tariffs weighed, while the pound hit a four-month high ahead of the Bank of England’s policy decision.
US policymakers projected likely two quarter-point interest rate cuts later this year, the same median forecast as three months ago, even as they expect slower economic growth and higher inflation. On Wednesday, the Fed held its benchmark overnight rate steady in the 4.25 percent-4.50 percent range.
“We’re not going to be in any hurry to move,” Fed Chair Jerome Powell said. “Our current policy stance is well-positioned to deal with the risks and uncertainties we face … The right thing to do is to wait here for greater clarity about what the economy is doing.”
Powell’s comments and the Fed statement underscored the challenge faced by policymakers as they navigate President Donald Trump’s plans to levy duties on imports from US trading partners and the impact on the economy.
“The fact that the economy is growing, unemployment is low and inflation is still tracking hot means interest rates will be on hold through to late summer,” ING economists said in a note.
“The Fed will be wary of moving too soon though given the prospect of higher inflation rates.”
Traders are pricing in 66 basis points of easing this year from the Fed, about two rate reductions of 25 bps each, with a cut in July fully priced in, LSEG data showed.
Kyle Rodda, senior financial markets analyst at Capital.com, said Powell did well in emphasizing the Fed intends to look through the one-off price shock caused by tariffs and will remain attentive to the downside risks to growth and the labor market.
