Sterling Holds Near Multi-Week High as Dollar Stays Subdued Ahead of Fed Minutes

The British pound held steady near a multi-week high against the U.S. dollar on Tuesday, as currency markets remained subdued ahead of the release of minutes from the Federal Reserve's latest policy meeting. The dollar was largely range-bound amid a light economic calendar, keeping the GBP/USD pair just below its recent peak.

Dollar Awaits Fed Catalyst

Traders are awaiting Wednesday's Federal Open Market Committee (FOMC) minutes for fresh clues on the U.S. interest rate path, leading to low volatility in Tuesday's session. Analysts at ING noted that markets require a "convincing narrative to short the high-yielding dollar," which they do not expect to emerge from the minutes unless they are surprisingly dovish.

Recent remarks from Fed Governor Christopher Waller, who said that risks to the outlook "have flipped on the hawkish side," added little new information for markets, according to ING. Without a strong data or policy signal, the dollar has struggled to find a clear direction.

Sterling and Euro Movements

The pound was little changed, with the GBP/USD currency pair trading at $1.3382, near its strongest level since the middle of June. In the UK, the latest Lloyds house price index showed a modest monthly price increase of 0.2% in June, snapping three consecutive months of softness. Annual growth ticked up slightly to 0.6%.

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"Mortgage rates have eased from their recent highs, offering some encouragement to those considering a move," said Amanda Bryden, head of mortgages at Lloyds, adding that affordability remains stretched for many potential buyers.

Meanwhile, the euro also drifted, with the EUR/USD pair easing slightly to $1.1430. According to ING, political developments in France, including a court ruling on Marine Le Pen, carry limited market risk as investors have largely priced in the current political landscape.

Market Outlook

Analysts suggest the dollar is likely to remain supported in the near term. ING forecasts that the U.S. Dollar Index (DXY) will stay closer to the 101.0 level than 100.0, absent a significant dovish surprise from the Fed.

A sustained advance for the pound may depend more on domestic factors, such as developments in the UK government bond (gilt) market, rather than a significant shift in the U.S. interest rate outlook.