Key Moments
- GBP/USD trades at 1.3497, leaving the pair down 1.14% for the week.
- Fed minutes indicate officials are in no rush to cut rates. Some may consider hikes if inflation stays elevated.
- The U.S. dollar has gained about 0.6% on a DXY basis and is 1.2% stronger than last week’s low.
Fed Minutes Revive Dollar Strength
The pound weakened against the dollar, with GBP/USD at 1.3497, extending its weekly decline to 1.14%. The U.S. currency regained momentum late in the week.
The rebound followed the release of January FOMC minutes. Policymakers emphasized they are not rushing to lower interest rates. Several officials suggested they could raise rates if inflation does not ease.
The minutes reminded investors that the dollar retains underlying support. “The near-term backdrop remains favourable: inflation is easing, labour markets are steady, and growth is strong,” says Karl Schamotta, chief analyst at Corpay. “This should support a hawkish repricing in the dollar.”
Market Reaction and Rate Expectations
Investors focused on the message that most FOMC members want further declines in inflation before considering cuts. “The US dollar advanced 0.6% on a DXY basis yesterday and is now 1.2% stronger from last Wednesday’s low,” says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank. “The minutes reinforced expectations that the FOMC could hold rates longer.”
Chris Turner, lead FX analyst at ING Bank, notes the minutes gave the greenback a fresh boost. “The dollar got a bid from the FOMC minutes. Several participants favored a two-sided description of Fed rate intentions, leaving open the possibility of hikes if inflation stays above target,” he explains.
Frances Cheung, Head of FX and Rates Strategy at OCBC, highlights Fed divergences. She says Committee members are divided over inflation and labor market outlooks, leaving the Fed in a wait-and-see stance. “Our base-case remains one 25bp cut this year, though the timing is under review,” she adds.
During February, markets increased expectations for a higher-for-longer Fed policy, a shift that supports the dollar.
Rare FX Operations and Policy Nuances
The minutes also revealed that the New York Fed checked USD/JPY rates with Japanese authorities for the U.S. Treasury on January 23, when USD/JPY traded around 157.
“This is extremely rare in FX markets and shows a more activist White House approach,” says Turner.
U.S. economic data has remained firm. A steady Fed rate supports the dollar. Meanwhile, a preference for a weaker dollar under the Trump administration highlights potential policy headwinds.
Turner suggests the dollar may drift higher, but positioning remains cautious. “The market’s sell-dollar rally mentality persists,” he notes.
Market Snapshot
| Instrument / Indicator | Level / Change | Context |
|---|---|---|
| GBP/USD | 1.3497 | Extends weekly loss to 1.14% |
| U.S. Dollar Index (DXY) | +0.6% | Gain since yesterday |
| DXY move from last week’s low | +1.2% | Stronger from Wednesday’s low |
| USD/JPY | Around 157 | Level during New York Fed rate check on Jan 23 |
| Fed policy outlook | On hold | Minutes reinforce potential for a longer pause |
| OCBC base-case | One 25bp cut | Timing under review |
GBP/USD Outlook and Investor Focus
GBP/USD remains under pressure as the dollar benefits from resilient U.S. data, a cautious Fed, and shifting rate expectations. Investors watch incoming inflation and labor data to gauge the timing and scale of potential Fed easing.
Market participants continue to monitor central bank communication. The balance between a stronger dollar and potential politically driven preferences for a weaker currency shapes FX sentiment.
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