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Pound Eases as Dollar Steadies Ahead of Key US Inflation Data
The British pound edged lower against the U.S. dollar on Wednesday, while the euro held steady, as the greenback found some support following a recent bout of softness. The currency market's focus is now shifting towards key economic data and upcoming central bank policy meetings.
As of 06:05 ET (10:05 GMT), the GBP/USD pair slipped by 0.05% to trade at 1.3534. Meanwhile, the EUR/USD was flat at 1.1625. According to analysts, Wednesday's move in sterling was not driven by domestic UK fundamentals but was rather a function of broader positioning in the U.S. dollar.
Dollar's 'Confusing' Performance
Analysts noted the dollar's recent failure to capitalize on supportive fundamentals has been a key talking point in currency markets. Chris Turner, Global Head of Markets at ING, described the dollar's price action this week as "a little disappointing/confusing."
Despite factors that should theoretically boost the dollar, such as higher energy prices directing trade flows to the U.S., the currency has failed to rally. Turner pointed to several headwinds weighing on the greenback:
Ad- A fragile USD/JPY exchange rate, with some hedge funds reportedly positioning for a move lower.
- A tight negative correlation between the dollar and elevated global equity markets.
Focus Shifts to Central Banks and CPI
Investors are now awaiting the U.S. August Consumer Price Index (CPI) report, due on Friday. ING described the data as "the final piece of the puzzle for the Fed’s policy decision next week," with the bank forecasting a 25 basis-point interest rate hike.
In Europe, the European Central Bank (ECB) is expected to announce its policy decision on Thursday. ING stated it is "looking for a dovish hike," meaning a rate increase accompanied by cautious forward guidance that may not support market pricing for further significant tightening. Turner noted that ING's base case remains a target of 1.15 for EUR/USD by the end of September, contingent on the Federal Reserve delivering its anticipated rate hike.
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