Sterling today: Pound slips as hawkish Fed outlook lifts dollar broadly

Investing.com -- Sterling traded lower on Wednesday while the euro also retreated, as markets priced in a more hawkish Federal Reserve path following Chair Kevin Warsh’s remarks last week, denting appetite for both major currencies against the dollar. GBP/USD fell to 1.3509, down 0.04%, while EUR/USD dropped to 1.1577, down 0.13%, as of 03:52 ET (07:52 GMT). ING Global Head of Markets Chris Turner said the cyclical Federal Reserve story could outweigh the broader dollar bearish debasement theme, while some bearish U.S. yield-curve flattening could still allow the dollar to advance against lower-yielding currencies. Turner said ING expects the U.S. Dollar Index to gradually rise toward the 100.10/20 area and potentially move higher following Federal Reserve Governor Christopher Waller’s upcoming comments. Renewed energy price gains are also reinforcing the hawkish expectations priced into money markets. Federal Reserve Chair Kevin Warsh’s hawkish speech on Friday shifted market expectations toward a possible September rate hike. Inflation is viewed as remaining too elevated relative to the Federal Reserve’s target despite a reasonably strong U.S. economy. Traders are awaiting Wednesday’s Beige Book release and a moderated discussion Thursday with Fed Governor Christopher Waller. ING expects Waller to reinforce the September rate-hike narrative unless economic data is surprisingly dovish ahead of the September 16 FOMC meeting. Wednesday’s U.S. economic calendar includes the ADP employment report and Durable Goods Orders. ING noted that even weak labor-market data may not be sufficient to prevent the Federal Reserve from raising rates. Sterling weakness not driven by UK fundamentals Wednesday’s sterling weakness was not primarily driven by UK-specific economic or political developments. Instead, the move reflected broader U.S. dollar strength as markets repriced Federal Reserve policy expectations. ING’s commentary did not identify Bank of England policy or UK economic data as major drivers of the session. Euro faces additional pressure The euro is facing additional headwinds from higher energy prices and a more hawkish Federal Reserve, pushing EUR/USD lower within its recent trading range. ING said that a break below 1.1565/70 could extend EUR/USD’s decline toward the 1.1520 area, with around 1.15 considered an appropriate month-end target. Around 80 basis points of European Central Bank tightening is currently priced by next summer. ING considers this scenario highly unlikely, although markets remain reluctant to reduce those expectations while uncertainty surrounding the Middle East remains elevated. EUR/CHF was trading above 0.94, while hawkish Federal Reserve expectations also weighed on the Swiss franc, gold and bitcoin. ING expects USD/CHF to challenge July highs near 0.82 unless renewed turmoil develops in the long end of global bond markets. Risks to the bullish dollar outlook ING’s bullish dollar outlook could be weakened if long-term Treasury yields sell off more sharply than expected. According to Turner, such a move could drag the dollar lower even as higher-yielding currencies underperform amid broader market volatility. This article was generated with the support of AI and reviewed by an editor.