Pound Gets Respite as Fed Signals Subdued Future Policy Path

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(Bloomberg) -- The pound advanced for a second day as the Federal Reserve maintained status quo on interest rates and scaled back the outlook for increases beyond this year.

The U.K. currency climbed from Wednesday’s five-week low versus the dollar. While the Federal Open Market Committee made clear there was still a case to raise rates this year, it put off the move on Wednesday and pared the number of hikes it foresees next year to two from three. Sterling is still the worst-performing Group-of-10 currency this month, weighed down by a lack of clarity around talks on the U.K. breaking away from the European Union.

“There’s obviously some initial relief that the Fed didn’t raise rates yesterday,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It does look like it was a fairly close call and they are moving closer to raising rates by the end of this year. Overall, it’s giving a modest dovish tone for the dollar in the near term.”

The pound rose 0.3 percent to $1.3070 as of 2:07 p.m. London time, after falling to $1.2946 Wednesday, the lowest since Aug. 16. Sterling weakened 0.2 percent to 86.02 pence per euro.

The U.K. currency stayed higher versus the dollar after Bank of England policy maker Kristin Forbes said the initial effect of the Brexit vote on the economy has been “less stormy” than expected and she doesn’t yet see a need for more stimulus.

“I am not yet convinced that additional monetary easing will be necessary to support the economy,” Forbes said in the text of a speech published on Thursday.

U.K. government bonds rose for a third day, pushing 10-year yields to the lowest in two weeks. Benchmark 10-year gilt yields fell seven basis points, or 0.07 percentage point, to 0.74 percent, after touching 0.73 percent. The 1.5 percent security due in July 2026 rose 0.645, or 6.45 pounds per 1,000-pound face amount, to 107.195.

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