Forexlive Americas FX news wrap: Pound bounces back after rate cut

• US initial jobless claims 219K versus 213K estimate
• US Q4 unit labor costs prelim +3.0% vs +3.4% expected
• Treasury’s Bessent: We do want the dollar to be strong
• Fed’s Goolsbee: First effects of tariffs may be less imporant than impacts on expectations
• Fed’s Waller says stablecoins would make dollar even more of a reserve currency
• Trump laid out six tax priorities in a meeting with Congress
• ECB’s Vujcic: Best thing to do is wait-and-see given high level of uncertainty
• Canada Ivey January PMI 47.1 vs 54.7 prior
• Trump: We will drive the price of oil down, everything else will follow
• BOE governor Bailey: We expect to be able to cut the bank rate further
• BOE governor Bailey: Each member votes as what they think is best
• BOE governor Bailey: We are currently not in a position to judge US policies
• BOE governor Bailey: I don’t use the word “stagflation”
• BOE governor Bailey: There was a bit of a debate about the world “careful”

Markets:

• WTI crude oil down 53-cents to $70.50
• US 10-year yields up 1.6 bps to 4.44%
• Gold down $8 to $2856
• S&P 500 up 0.4%
• JPY leads, GBP lags

The pound was in focus today as the BOE cut rates (as expected) and lowered growth forecasts. That led the market to price in more rate cuts, including one in May rather than June. In turn, the pound initially fell to 1.2360 from 1.2430 in a swift move. But it stabilized there and then slowly climbed all the way back and more.

Part of the rebound was some broader US dollar selling and we may also have seen around of GBP short covering. When you zoom out, there is also the possibility of a double bottom on the cable chart that has some traders wading in, particularly after Trump said the UK wouldn’t be targeted with tariffs.

The overall mood was a continuation of the late-Monday move as the market firms up its belief that Trump won’t prioritize tariffs. At the same time, Trump reportedly laid out some aggressive tax cut priorities with little indications on how they might be paid for. The House is working quickly on a reconciliation bill that could offer some hints soon, including how tariffs could be used to pay for the tax cut.

The yen continued to climb as USD/JPY fell to the lowest since Dec 10 in the third day of strong selling. The latest catalyst was a BOJ member talking about a faster pace of rate hikes. In contrast, the Swiss franc fell as it becomes the preferred funder.

All this is wrapped around Friday’s non-farm payrolls report. See: January non-farm payrolls preview by the numbers: Positive signs abound

This article was written by Adam Button at www.forexlive.com.