Pound Holds Above $1.34 as Fed Rate Hike Bets Bolster US Dollar

The British pound held firm above the $1.34 mark on Wednesday, though its advance was capped by a resilient U.S. dollar supported by lingering expectations of another Federal Reserve interest rate hike.

As of 4:28 AM ET, the GBP/USD currency pair traded at 1.3466, up 0.13% on the day. Meanwhile, the EUR/USD was up 0.08% at 1.1541, with both currencies struggling to make significant headway against the greenback.

Dollar Strength Counters Improved Risk Sentiment

Despite a broader improvement in market risk appetite, which typically weighs on the safe-haven dollar, the currency has remained strong. Analysts at ING noted that factors like falling oil prices—with Brent crude dipping below $80 a barrel—and a rebound in equities have failed to dent the dollar's appeal.

ING attributed the dollar's resilience to persistent market bets that the Federal Reserve could raise interest rates again at its September 16 meeting. While pricing for a hike has slightly eased following softer JOLTS job openings data, investors remain focused on key upcoming U.S. economic reports, including the ADP employment figures, the ISM Services index, and Friday's crucial non-farm payrolls report.

Dovish BoE Curbs Sterling's Upside

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The pound's recent performance has been driven less by domestic factors and more by the outlook for U.S. monetary policy. The Bank of England's recent policy meeting continues to influence trading, where the central bank voted 6-to-3 to keep interest rates on hold.

This was a more dovish outcome than the 7-to-2 split some investors had expected. Comments from Governor Andrew Bailey also downplayed the immediate need for tighter policy, leading markets to reduce wagers on UK rate hikes for 2026.

Euro Faces Similar Headwinds

The euro is facing similar pressures, struggling to gain significant ground against the dollar despite positive regional economic data. Recent figures showed Eurozone GDP grew 0.4% in the second quarter, its fastest pace since early 2025, while July inflation accelerated to 2.9%, boosting expectations for a European Central Bank rate hike.

However, ING described the euro's performance as "sluggish," suggesting that even strong data is failing to provide a sustained lift for the single currency amid the dollar's overarching strength.