Sterling Surges as Powell Signals Upcoming U.S. Interest Rate Cuts

The U.S. dollar fell and sterling rose to a two-year high on Friday following Federal Reserve Chair Jerome Powell's announcement hinting at an imminent interest rate cut. Traders reacted by betting heavily on rate cuts in September, causing a ripple effect across global currency markets with the euro and yen also gaining strength.

The U.S. dollar fell and sterling surged to its highest in over two years on Friday, propelled by Federal Reserve Chair Jerome Powell's strong indication that the anticipated U.S. interest rate cut would occur next month.

In his keynote speech at the Kansas City Fed's annual economic conference in Jackson Hole, Wyoming, Powell emphasized the need for policy adjustment given the diminishing upside risks to inflation and growing downside risks to employment. Traders quickly priced in a quarter-percentage-point rate cut for the Fed's September meeting, with some considering the possibility of a larger 50-basis-point cut.

Meanwhile, the euro hit a 13-month high, and the yen also gained against the dollar following remarks from Bank of Japan Governor Kazuo Ueda. The shifting landscape in global currency markets saw the dollar index drop 0.81% from late Thursday to 100.64. Sterling closed the afternoon at $1.3211, further buoyed by strong UK economic indicators.