Warsh's Hawkish Stance Boosts USD, Weighs on GBP
The British pound (GBP) slid against the US dollar (USD) on Friday, trading at around 1.3538 and down approximately 0.40%. This decline came as Federal Reserve Chair Kevin Warsh emphasized his commitment to fighting inflation, which boosted expectations of a potential interest rate hike in September.
Warsh's comments on inflation were stark, despite recent summer data showing lower-than-expected prices. He stated that core inflation had not improved as much as anticipated and expressed concern about the current inflation situation. The Fed Chair stressed that policymakers need convincing evidence that inflation is moving toward the central bank's 2% PCE target.
The hawkish tone from Warsh triggered renewed demand for the US dollar, pushing the US Dollar Index up by more than 0.38% to around 99.49. The benchmark US 10-year Treasury yield also increased nearly 1.5 basis points to 4.686%. As a result, interest-rate expectations shifted significantly, with markets raising the probability of a 25-basis-point Fed rate hike in September from 34% to 50%.
The strengthened dollar and hawkish Fed stance have created additional downside pressure on GBP/USD. The near-term outlook for sterling remains vulnerable if upcoming US inflation and labor-market data continue to support a more aggressive Fed policy.