Investing.com — Sterling traded higher on Friday while the euro also gained, as the dollar broadly weakened following dovish remarks from Federal Reserve Governor Christopher Waller that reduced the odds of a September rate hike.
rose to 1.3545, up 0.15%, while added 0.02% to 1.1628, at 03:48 ET (07:48 GMT).
“Given the hot debate over whether the Fed raises rates at all, it looks like investors are concluding that any Fed tightening cycle will be very modest and not enough to derail a relatively benign investment backdrop,” said Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING.
“That presents a mildly negative backdrop for the dollar in the short term.” Turner added that “barring a very strong NFP number today… we could see the dollar drifting a little lower.”
Waller’s comments on Thursday were more dovish than markets had expected, shifting the burden of proof onto a hot August inflation print to justify a hike, rather than reinforcing Fed Chair Kevin Warsh’s hawkish tone from a week earlier.
fell 5 basis points. Market pricing for a September Fed hike now sits at exactly 50%.
Focus turns to Friday’s non-farm payrolls, with consensus at +55,000 and a “whisper” number closer to +30,000; unemployment is seen holding at 4.1%.
ING said the lasting market impact should come from inflation data rather than labour figures, and the bank’s house call remains a 25bp Fed hike, seeing the dollar “relatively stable into year-end.”
Sterling’s gains are not being driven by UK fundamentals. has been consolidating after breaking above 0.86 the previous session, a move ING linked to the recent gilt sell-off and concerns over strained UK public finances.
New Chancellor John Healey is expected to deliver his first major political speech early next week, expected to stress fiscal responsibility.
Friday’s focus is on monetary policy, with the Bank of England’s Decision Maker Panel survey due and Governor Andrew Bailey speaking at 10:50am CET; ING said it is “too early to get the all-clear on inflation,” with up to 60bp of BoE tightening still priced into UK money markets.
The euro is unwinding last week’s Warsh-driven sell-off, drifting back toward the 1.1650 level it traded at before that speech, aided by broad dollar softness against G10 pro-growth currencies. ING flagged Sunday’s Saxony-Anhalt regional elections in Germany as a “left-field risk,” where strong AfD gains could raise questions over Chancellor Friedrich Merz’s government stability.
ING sees EUR/GBP trading in an 0.8550-0.8600 range before breaking higher toward 0.87 in the fourth quarter, contingent on the BoE tightening cycle stalling further.