Pound reaches highest level against dollar since early 2022 as Fed chair hints at imminent rate cut | Business News

The pound has surged against the US dollar, reaching its highest level since March 2022, following remarks by the chair of the Federal Reserve signaling an imminent interest rate cut.

During the US central bank’s annual economic conference in Jackson Hole, Wyoming, Jay Powell stated that it was time for a policy adjustment, hinting at a quarter-point reduction in the Fed’s benchmark rate at the upcoming mid-September meeting.

Financial markets and economists anticipate this rate cut as the first step in reversing the hiking cycle that began in 2022, aligning the Fed with other central banks like the European Central Bank and the Bank of England in addressing inflation concerns.

The surge in inflation, triggered in part by the reopening of economies post-COVID and exacerbated by the conflict in Ukraine, has pushed central banks to act cautiously to prevent further price growth through wage increases.

While Powell emphasized that the US job market was no longer overheated, Bank of England governor Andrew Bailey remained vigilant in his stance against inflation, acknowledging the diminishing secondary effects on prices.

The likelihood of multiple rate cuts throughout the year sent the US dollar tumbling against global currencies, with the pound topping $1.32 in trading, offering UK holidaymakers a favorable exchange rate.

Not only did the pound’s rise benefit travelers, but it also lowered the cost of servicing UK government debt, with a decrease in the yield on 10-year bonds.

Stock markets responded positively to the news, with gains recorded in Europe and the US, reflecting investor optimism following Powell’s comments.

The FTSE 100 climbed 0.5%, while the S&P 500 in New York saw a gain of over 1%.

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While the market responded positively, economist George Lagarias cautioned against unfounded optimism, urging investors to be cautious in the face of uncertainty surrounding the pace of rate cuts by the Fed.