The US dollar fell modestly but remained close to its highest levels in about two weeks, as investors’ attention turned to the upcoming US jobs report at the end of the week.
At 18:40 ET (22:40 GMT), the pound was down 0.1% at 101.64. The pound was little changed at 1.1070.
The report, due out Friday, is expected to play a crucial role in shaping the Federal Reserve’s monetary policy, especially after Fed Chairman Jerome Powell signaled a shift from focusing on inflation to preventing job losses.
There is currently a 33% chance of a 50 basis point cut this month, with a full quarter point cut expected. This represents a slight shift from the previous week when the probability of a larger cut was 36%.
Markets had been anticipating a rate cut from the Fed, with a 25 basis point rate cut already priced in for weeks. The dollar’s earlier strength reflected that sentiment as it hit its highest level since Aug. 20, driven by a rise in long-term Treasury yields to their highest since mid-August.
The rise in yields came after inflation data suggested the Federal Reserve may opt to cut interest rates by a smaller amount.
The latest GDP figures underscore the resilience of the US economy, suggesting that the Federal Reserve has the ability to ease its accommodative policies. However, traders are still betting on the possibility of a Fed rate cut.
The results of the upcoming jobs report are likely to have a major impact on the dollar’s path in the near term.
“Stronger-than-expected payrolls numbers and lower unemployment rates are likely to provide markets with greater confidence that growth risks have receded, paving the way for higher equity valuations and potential compensation in some other markets/equities that have lagged,” Morgan Stanley economists said in a note.