By Greta Rosen Fondahn
(Reuters) – The pound fell against the dollar on Wednesday, while British finance minister Rachel Reeves outlined plans for growth, and as currency investors shifted their focus to the U.S. Federal Reserve’s upcoming policy decision.
Reeves backed on Wednesday the construction of a long-delayed new runway at London’s Heathrow Airport, and also said Britain will boost its economy by resetting ties with the European Union and building on its special relationship with the United States.
Reeves is under pressure to address investors’ concerns about Britain’s economy after a bond market selloff this month that drove government borrowing costs to their highest in decades.
Later in the day, markets expect the U.S. Fed to hold rates steady at its policy meeting, with the dollar stabilising against a range of currencies ahead of the decision while uncertainties around U.S. trade tariffs linger.
“The bigger question is rather what further cuts can be expected over the course of the year,” said Commerzbank foreign exchange analyst Antje Praefcke.
“Contrary to expectations, the new U.S. president did not immediately want to impose tariffs on ‘everyone’ after his inauguration, meaning that the possible inflationary effect of rising import prices in the U.S. and the corresponding (hawkish) reaction of the Fed have to be reassessed.”
Sterling fell for a second day against the dollar, trading down 0.2% at $1.2417.
The currency took a hit against the U.S. unit and the euro at the beginning of January, when concerns mounted around Britain’s economic outlook amid a global bond selloff.
But some of the pressure on the British government has eased after yields on UK government bonds, called gilts, retreated from their recent highs.
The pound edged up slightly against the euro, strengthening for a fifth day, with one euro at 83.76 pence.
While investors have added to their bets on Bank of England rate cuts this year with 71 basis points priced in, they still expect the BoE to cut less than the European Central Bank, where markets see 90 bps of easing.
(Reporting by Greta Rosen Fondahn; Editing by Amanda Cooper and Emelia Sithole-Matarise)
