Story
British Pound Falls Toward 3-Month Low as Dollar Strength Persists
Summary
The British pound declined on Thursday, approaching its lowest closing level since late June as a broad-based rally in the U.S. dollar continued, fueled by elevated Treasury yields and expectations for a hawkish Federal Reserve.
The British pound fell against a strengthening U.S. dollar on Thursday, putting the currency on track for its lowest closing price since June 26. The dollar's ascent has been underpinned by U.S. 10-year Treasury yields holding near multi-year highs not seen since 2007.
Dollar Dominates on Fed Outlook
The dollar's momentum follows stronger-than-expected U.S. business activity data released Wednesday, which reinforced investor expectations that the Federal Reserve will maintain high interest rates for an extended period. This sentiment has provided broad support for the greenback against its major peers.
As of 8:33 AM ET, the key currency movements were:
- GBP/USD was down 0.15% to 1.3222.
- EUR/USD slipped 0.13% to 1.1369.
- The U.S. Dollar Index (DXY), which measures the dollar against a basket of currencies, pushed above the 101.0 mark.
Analysts Caution Rally May Be Overextended
AdWhile the dollar's move is supported by strong data, rising oil prices, and weaker risk sentiment, some analysts believe the rally may be nearing its peak. Francesco Pesole, an FX strategist at ING, noted in a report that the dollar's gains are "starting to look a bit overextended."
ING's analysis suggests that if upcoming U.S. economic data fails to exceed expectations, the Dollar Index could see a "correction back to the 100-100.50 area in the coming weeks." However, Pesole also cautioned that any unexpectedly strong data could easily lead markets to fully price in another Federal Reserve rate hike in October.
Market Focus on Fed Speakers and Global Risks
Investors are closely monitoring upcoming speeches from several Fed officials on Thursday for any new signals on the path of monetary policy. Meanwhile, analysts at ING also highlighted the rapid rise of the USD/JPY pair as a potential risk, suggesting it could trigger intervention from Japanese authorities and lead to broader, albeit temporary, dollar weakness.
In the Eurozone, ING's models indicate that the EUR/USD pair has entered "clear undervaluation territory" following its drop below 1.1400. The firm characterized the decline as "entirely dollar-driven," noting that recent business activity data in the euro area was better than expected, and anticipates the pair will rebound toward the 1.1430-1.1450 range, barring a further widening of interest rate differentials in the dollar's favor.
Read next
More on Forex
Dollar Hits Two-Month High as Strong Data, Yield Surge Revive Fed Hike Bets
The U.S. dollar extended its rally to a fourth day, reaching a two-month peak after robust economic data and a surge in Treasury yields fueled market expectations for another Federal Reserve interest rate hike.
Hungarian Central Bank Endorses Stronger Forint to Combat Inflation
The Hungarian National Bank (MNB) has identified a sustained appreciation of the forint as a core element of its strategy to meet revised inflation targets, arguing the benefits for price stability outweigh potential impacts on growth.
Bank of America Forecasts EUR/USD to Reach 1.15 by Year-End, 1.20 in 2027
Bank of America analysts project the euro will strengthen against the U.S. dollar to 1.15 by the end of 2026 and 1.20 by late 2027, citing an outlook for modest dollar weakness.
Hungary's Central Bank Endorses Stronger Forint for Inflation Control, BofA Says
According to a Bank of America analysis, the National Bank of Hungary views currency appreciation as a key tool to achieve its inflation target, seeing its benefits for disinflation as outweighing risks to economic growth.