Investing.com — Sterling traded lower on Thursday while the euro also slipped, as geopolitical tension in the Middle East lent modest support to the dollar and capped gains in both European currencies, with markets awaiting the European Central Bank’s rate decision later in the session.
fell to 1.3365, off 0.12% on the day. dipped to 1.1404, down 0.05% as of 07:05 ET (11:05 GMT).
Broad FX volatility remained subdued, but analysts at ING warned the calm carries hidden risk. “The low-vol regime carries material risks should risk assets reach a breaking point in their tolerance for higher energy prices,” said Francesco Pesole, FX strategist at ING.
“That point may be nearer than current market calm implies.” Overnight, Houthi militants struck two Saudi vessels in the Red Sea, adding a fresh source of oil supply concern.
Commodity-linked currencies including the , and led performance within G10 and emerging markets as investors rotated toward high-yielding names rather than the dollar itself.
On the U.S. side, the domestic data calendar was light Thursday, leaving the dollar without a fresh fundamental catalyst. ING noted that hawkish repricing in central bank expectations globally, including at the ECB, is capping the pass-through from rising front-end U.S. rates to the dollar, keeping from reclaiming the 101.50 level in the near term.
No Federal Reserve speakers were scheduled, and markets remained in a holding pattern ahead of next week’s data releases.
Sterling’s modest decline reflects dollar-side dynamics rather than any UK-specific driver. There were no significant domestic data releases or policy developments out of the United Kingdom on Thursday. The move broadly tracks the wider dollar firm tone.
The euro’s attention Thursday centred on the European Central Bank, which was widely expected to hold rates unchanged. ING’s baseline called for a hawkish hold, with the governing council aiming to preserve market pricing of 45 basis points of tightening by year-end.
Pesole said a post-meeting media leak signalling a September hike, rather than explicit guidance from President Christine Lagarde at the press conference, was the more likely vehicle for maintaining that hawkish signal.
“A central bank meeting would normally be a prime catalyst for EUR/USD to break out of its tight trading range, but we do not expect that to happen today,” Pesole said.
ING sees its near-term bias for EUR/USD tilted to the downside given what it described as dangerous FX market complacency around Gulf developments, targeting a drift toward 1.1380 in the coming days.
ING’s year-end EUR/USD view would shift toward a more sustained recovery only if Middle East newsflow turns constructive and risk sentiment stabilises. For GBP/USD, a return toward 1.34 and beyond would require either a dovish Fed pivot or a softer dollar on improved global risk appetite.