Sterling Slips as Dollar Gains on Expectations of Warsh Fed

The British pound fell against the U.S. dollar on Friday, as the greenback strengthened on growing expectations that former Federal Reserve governor Kevin Warsh will be named the next chair of the U.S. federal reserve.

Sterling was last down 0.56% at $1.3742, posting similar losses against other major currencies. Against the euro, however, the pound was broadly stable, trading at around 86.70 pence per euro.

The dollar’s advance was driven by investor reaction to reports that Warsh is the leading candidate to succeed Jerome Powell as Federal Reserve chair, a move widely seen as supportive of the U.S. currency.

Recent movements in the pound have been driven largely by external factors, but attention is now turning to the Bank of England’s policy meeting next week.

Markets broadly expect the BoE to leave interest rates unchanged, with investors instead focusing on updated economic forecasts and the balance of opinion within the Monetary Policy Committee (MPC), as they seek clues on the scope for further monetary easing later this year.

“Updated projections are likely to present a more moderate inflation outlook, reinforcing the Bank of England’s easing bias,” said Dani Stoilova, European economist at BNP Paribas.

She added that the bank is expected to cut rates again in March, followed by an extended pause, noting that markets are currently pricing in the next cut closer to April.

The Bank of England publishes individual votes and policy rationales, and analysts say the wide range of views within the MPC has increased scrutiny of each member’s stance.

“Given the dispersion of opinions, individual policymakers’ views matter more than usual,” Stoilova said. She pointed in particular to the relatively dovish leanings of Dave Ramsden and Sarah Breeden, which underpin BNP Paribas’s expectation of a 7–2 vote split at the upcoming meeting.

“While both support further easing, we do not believe they favor consecutive rate cuts,” she added.

Meanwhile, global markets remained focused on developments in Washington after U.S. President Donald Trump said on Thursday that he would announce Powell’s successor on Friday.

The dollar and long-term U.S. Treasury yields rose following the reports, as investors priced in a policy outlook under Warsh that could combine lower interest rates with a tighter Federal Reserve balance sheet.

Market participants see this mix as broadly supportive for the dollar, reinforcing its recent rebound and weighing on major counterparts such as sterling.