Investing.com — Sterling traded higher on Friday while the euro was flat, as broad dollar strength driven by rising Fed tightening expectations and higher energy prices overshadowed a stronger-than-expected UK retail sales print.
was last up 0.08% at 1.3325, while remained stable at 1.1377 as of 08: 13 ET (12:13 GMT).
“The dollar continues to perform well as high energy prices raise expectations for a central bank response,” said Chris Turner, Global Head of Markets at ING. “It remains very dangerous to fight this trend… we expect the dollar to outperform.”
Turner noted is closing in on June’s 101.80 high, with an upside break-out cannot be ruled out, as two-year real USD swap rates have risen 30 basis points since the June FOMC meeting.
The Fed has offered no explicit guidance beyond signalling a need to “restore credibility” on inflation, ING said, and markets do not expect a hike at next week’s meeting.
U.S. data flow is light Friday, July flash S&P PMIs and new home sales are the main releases, but investors are seen holding long-dollar positions into the weekend amid reports President Trump is threatening a fresh military escalation against Iran.
Sterling’s resilience is not being driven by domestic developments, ING’s commentary suggests, though UK data released Friday added some support.
British retail sales rose 1.0% in June, versus forecasts for a 0.3% decline, as shoppers bought air conditioning units and clothing during one of the hottest Junes on record; online sales’ share hit its highest since April 2021 at 29.4%.
The data followed a GfK survey showing improved consumer sentiment, partly linked to hopes around new Prime Minister Andy Burnham, who has made cost-of-living relief his top priority, including cuts to electricity-bill taxes and a lower bus-fare cap. UK inflation also slowed in June as fuel and food prices eased during a brief Gulf ceasefire.
The euro remains under pressure from widening real rate differentials rather than ECB policy itself. ING’s Chris Turner said a “hawkish hold” from the ECB this week “provided little support,” with two-year real EUR/USD swap differentials widening to levels last seen in late 2024, when EUR/USD traded below 1.10.
“We do not think EUR/USD needs to trade down to those levels now, but as long as energy prices continue to fire up Fed tightening expectations, we think the pair should be pressing the low 1.13s,” Turner said. Friday’s eurozone flash PMIs and the WAVE inflation survey are expected to confirm the ECB’s risk assessment of weaker growth and higher inflation.
ING sees EUR/USD grinding toward the low 1.13s near-term, a view that would only shift if energy prices “turn sharply lower soon,” easing pressure on both Fed and ECB tightening expectations.