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Pound gets respite as Fed signals subdued policy path

London - 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 UK 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 UK 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 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 0.2% to $1.3054 as of 09:53, after falling to $1.2946 Wednesday, the lowest since August 16. Sterling was little changed at 85.99 pence per euro.

UK 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 to 0.74%, after touching 0.73%, the lowest since September 8. The 1.5% security due in July 2026 rose £6.80 per £1 000 face amount, to 107.23.

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