Sterling falls from two-month high against US dollar after Fed cut

Sterling has been among the G10's best performing currencies against the US dollar this month.

Last night’s 0.25% interest rate cut from the Federal Reserve knocked the pound and the euro back slightly ahead of the Bank of England’s decision at noon today. Sterling has still strengthened by almost a cent against the US dollar since the end of August, although it has struggled to build up much momentum against the euro despite a positive day on Wednesday.

President Trump is currently sampling Britain’s trademark autumn weather on his second state visit, but he will no doubt be glad to hear the news from across the Atlantic. Having exerted significant pressure on chair Jerome Powell to speed up the cuts, the president will likely renew his calls for more urgent action to stimulate the economy.

As expected, the Fed’s board opted for a 0.25% cut, but the projections released alongside the decision showed a further two cuts pencilled in for the remainder of 2025. Powell framed this as a “risk management” decision, with policymakers seemingly in agreement that the risks to the job market now outweighed the possibility that the trade war might cause higher inflation.

The BoE will of course make its own decision today, although one unlikely to spark as much glee. Economists predict policymakers to announce a hold after August’s risky cut, but as always in these situations, much will be made of exactly how the votes fall. Sterling could suffer should more than the expected two voters call for a cut.

The Bank of Canada snipped interest rates by a quarter point yesterday afternoon, taking them from 2.75% to 2.5%. That decision was in line with consensus market expectations and followed a string of holds stretching back to March.

Away from the central bankers, the UK spent Wednesday digesting the news of another hot inflation report. A pair of housing metrics from the United States meanwhile showed activity was slowing down when it comes to new-build projects.

Social media scrollers could soon be tapping on a new TikTok. American and Chinese officials have reportedly agreed to the framework of a deal that would spin the US arm off to a number of tech firms.

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GBP: Nearing the crest of inflation?

Headline inflation held steady at 3.8% in August. That’s almost double the Bank’s target level, but the lack of an overshoot raised hopes we might be nearing the end of the latest inflation surge. If inflation comes down, the pound might come under some downward pressure if it raises the likelihood of faster interest rate cuts.

GBP/USD: the past year              

EUR: A rare inflation haven

Just across the Channel, the eurozone is experiencing a blissful period of low inflation. In fact, the headline figure was actually revised down to 2% at the second reading, hitting the European Central Bank’s target and reducing scope for an interest rate hike.

GBP/EUR: the past year

USD: The nine-month wait is over

The Federal Reserve’s last interest rate cut came when Joe Biden still occupied the White House. After a dizzying period of chaos and rancour, policymakers have at last decided it’s safe to cut once more. That only adds to the pressure the US dollar is facing at the moment, particularly as dissent within the Fed’s ranks seems to grow by the day.

EUR/USD: the past year

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