USD pullback, GBP bullish expectations strengthenedThe dollar briefly hit a high as expectations for the stimulus effects of President Trump's policies rose again after his re-election. However, on the eve of the US and UK central bank resolutions, the dollar pulled back. Mr. Trump's economic plans could boost demand in the short term, analysts say, but the risks of deficits and inflation that come with them could make the dollar volatile in the future.
After hitting a high of 105.25, the dollar index (DXY) retreated and is currently down 0.27% at 104.88, mainly as markets start to re-digest the Fed's path of response to inflationary pressures. With last week's weaker-than-expected non-farm payrolls data and a less clear inflation outlook, the market sees a 67% chance that the Fed will cut rates by 25 basis points tonight and raise rates in December.
The pullback comes as the euro and sterling rally against the greenback. The euro was up 0.3 percent against the dollar at 1.0758, having not been significantly dragged down despite the political crisis in Germany. Sterling rose 0.19% to 1.2902 against the dollar, with the Bank of England widely expected to cut its benchmark interest rate by 25 basis points tonight, taking it to 4.75%. Some of the pound's strength stems from expectations that the U.K. government will continue to push through stimulus policies to support demand in the domestic economy, though that also means there will be considerable pressure on the pound's strength over the longer term.
