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Williams caps the dollar as TD Securities advises fading USD rallies, with the pound steadying near multi-week lows.
The pound-to-dollar exchange rate is consolidating near multi-week lows at 1.3258 on Wednesday after a senior Federal Reserve official pushed back against market bets for an October rate hike.
New York Fed President John Williams said one more rate hike "late this year" may be appropriate but stressed there is "no need for urgency" following the September hike.
Speaking at the University at Buffalo on Tuesday, Williams said incoming data should provide greater clarity on the economy before the Fed decides on its next move.
"That is just my forecast, and time – and the totality of the data – will tell," he said.
Williams' words carry particular weight, as the New York Fed President typically works closely with the Fed Chair in shaping policy.
He expects inflation to end the year around 3.5%, before easing through 2027 and returning to the Fed's 2% target in 2028.
The Fed raised rates by 25 basis points to a 3.75-4.00% range earlier this month, and markets had been leaning towards a follow-up move at the 28 October meeting.
Traders pared bets on an October hike after Williams spoke, with December now the more likely timing for the next move.
Above: GBP/USD at daily intervals, with the 21-day moving average.
Ahead of the comments, the US 30-year yield had risen to 5.57%, the highest level since 2002.
The 10-year yield then eased back to 5.24% in the wake of the Williams comments.
That price action was enough to limit the dollar's ambitions and allowed the pound-to-dollar rate to consolidate near 1.32.
The consolidation is giving the downward-sloping 21-day moving average the chance to catch up: mean reversion can work with the exchange rate recovering or simply staying still.
The pound-to-dollar rate fell to two-month lows last week, as strong US data and a hawkish Fed fuelled a broad dollar rally.
Monday's week ahead forecast flagged that the dollar rally was due a breather, and Williams has supplied the trigger.
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistDollar Rally Stretched and Due a Setback: TD Securities
Although Williams is attracting the headlines, his comments land at a time when the dollar was already likely to cool following a blistering run.
"September month-end rebalancing, softer US payrolls, and stretched USD uptrends are imminent catalysts for the USD rally to consolidate," says Howard Du, FX Strategist at TD Securities.
TD Securities' trend-following framework shows the dollar rally has become stretched against the euro, the pound and the Canadian dollar.
"We maintain a bullish year-end EURUSD forecast as we continue to see near-term Fed rate hike as priced-in while growth in RoW remains resilient," adds Du.
A higher euro-to-dollar rate by year-end implies a firmer pound-to-dollar rate too, given the euro and pound tend to move together against the greenback.
"We do not see the USD breaking out to a new high in the current Fed rate hiking cycle unless the Fed can out-hawk global central banks like in 2022, or RoW growth outlook starts to falter ahead of the US. The USD should still remain in a bearish regime, and it makes more sense to fade the USD rips particularly for investors that look to hedge USD-based assets," says Du.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
