Dollar Extends Post-Fed Rebound: What It Means for Your Business and Investments Amid Sterling’s Fiscal Concerns
NEW YORK — The US dollar gained strength on Friday, continuing its rebound against most major currencies as traders assessed the near-term outlook following the Federal Reserve’s recent interest rate cut and its indication of gradual easing going forward.
The US Dollar Currency Index, which measures the greenback against six major currencies, increased by 0.3% to 97.662. After dropping 1% earlier in the week amid expectations of swift rate cuts, the index remained roughly flat for the week overall. On Wednesday, the Fed implemented a widely anticipated rate reduction but signaled a cautious approach to further easing in the coming months. The Fed’s rate forecast, represented by the “dot plot,” projects two additional rate cuts later this year.
Marc Chandler, Chief Market Strategist at Bannockburn Forex, described the week as “one of two halves,” noting that the Fed’s actual voting results and projections were less dovish than its statement and labor market concerns suggested. He added that the dollar could continue to rebound after experiencing selling pressure prior to the Fed’s announcement. Chandler advised clients that any dollar selling should be temporary, with better entry levels expected soon.
Sterling weakened on Friday after Britain’s borrowing sharply exceeded official forecasts, adding complexity to the country’s fiscal outlook. The pound was among the weakest in the G10 currency group, as investors expressed concerns about British Finance Minister Rachel Reeves’ ability to manage the budget. The pound fell 0.6% to $1.3468, heading for its largest two-day decline since early April.
Jane Foley, Head FX Strategist at Rabobank, commented that despite stronger-than-expected UK retail sales in August, rising government borrowing underscored the fiscal challenges facing Chancellor Reeves ahead of the November budget. August retail sales increased 0.5%, supported by favorable weather, though July’s growth was slightly revised downward. Borrowing levels for the first five months of the financial year hit their highest since 2020, potentially signaling further tax increases. Reeves is widely expected to announce new taxes in her November 26 budget to adhere to fiscal rules and stabilize markets.
In Japan, the yen strengthened following the Bank of Japan’s decision to hold interest rates steady despite dissent from two board members. The unexpected opposition unsettled investors and renewed speculation on the timing of the next rate hike. David Chao, Global Market Strategist at Invesco Asia-Pacific, noted that this dissent suggests rate increases may come sooner than previously expected, with the upcoming October 30 meeting seen as the best opportunity for a rate hike in 2025. The yen ended nearly unchanged at 147.975 against the dollar after a volatile trading session.
Uncertainty remains around how Japan’s ruling Liberal Democratic Party leadership election on October 4 will influence BOJ policy, as members decide the successor to outgoing Prime Minister Shigeru Ishiba.
Meanwhile, the New Zealand dollar extended its recent decline, dropping 0.4%, following a disappointing economic report that led to sharply lower yields and heightened market expectations for more aggressive rate cuts.
— Reuters
Special Analysis by Omanet | Navigate Oman’s Market
The recent US Federal Reserve rate cut, coupled with a cautious outlook for gradual easing, signals a resilient dollar that may continue to rebound, impacting currency stability in Oman’s import-export sectors. For Omani businesses and investors, this creates both opportunities in dollar-pegged contracts and risks in foreign exchange volatility, urging strategic hedging and market vigilance. Smart entrepreneurs should anticipate potential shifts in global capital flows and consider diversifying portfolios to mitigate currency-related risks while exploring sectors benefiting from a stronger dollar environment.
