The Federal Reserve's policy shift weakens the dollar, the British pound breaks new highs soon, and the dollar's pressure against the euro sharply increases.

The Federal Reserve’s policy stance is quietly shifting. Following the latest decision, the dollar’s rebound momentum has noticeably weakened, creating opportunities for the appreciation of non-dollar currencies such as the British pound. Convera strategist George Vesi pointed out that against the backdrop of a weakening dollar, the GBP/USD pair could break through the 1.40 level, despite limited catalysts in the UK economy.

The Impact of the Fed’s Shift on the Dollar’s Weakness

After the Fed’s decision, the market briefly rebounded the dollar, but the signals embedded in this rebound are worth noting—the dollar’s intrinsic upward momentum is gradually diminishing. This means the dollar no longer has the strong support base it once did. In this context, the GBP/USD reaching near 1.40 is no longer an unattainable goal.

Pound Appreciation Potential and Central Bank Policy Risks

The pound’s rise is not driven by strong domestic fundamentals but more by the relative weakness of the dollar. However, it is important to note that the Bank of England’s rate cuts could exert a counteracting pressure on the pound. If the BOE’s rate cuts exceed market expectations, the GBP/EUR could face further downside, and the USD/EUR pair may also be indirectly affected.

Multiple Factors Converge, Reshaping the G10 Currency Ecosystem

The UK local elections in Q2 and subsequent fiscal policy developments should not be overlooked. These political events could further weaken the GBP/EUR performance, adding multiple layers of exchange rate pressure. Market participants need to closely monitor the interaction between central bank policies, the political calendar, and the Fed’s trajectory to make more nuanced judgments on major currency pairs like USD/EUR.