Sterling headed for its lowest close since June 26 on Thursday as a stretched dollar rally held firm alongside a multi-year peak in Treasury yields. GBP/USD fell to 1.3222 even as ING flagged the dollar move as overextended, while a Bank of England deputy governor warned rates may need to rise if high energy prices persist.
Pound slips as dollar rally holds
GBP/USD fell 0.15% to 1.3222 as of 08:33 ET (12:33 GMT) on Thursday, putting sterling on course for its lowest close since June 26. The US 10-year Treasury yield held near its highest level since 2007, alongside the dollar's rally, while EUR/USD slipped 0.13% to 1.1369 over the same stretch.
The dollar index broke above 101.0, with ING strategists citing strong PMIs, higher oil prices and soft risk sentiment. Yet ING FX strategist Francesco Pesole cautioned the move may have overshot. According to Investing.com: "The dollar rally has accelerated, and the move is starting to look stretched", he said, adding that ING expects a correction in the dollar index in the coming weeks, with a return to the 100-100.5 area, if the risk of further data surprises doesn't materialize.
Fed speakers eyed for October signal
Four Fed officials — Williams, Barkin, Hammack and Paulson — are due to speak Thursday, and markets will watch for signals on whether an October hike is live. Pesole noted that any upside surprise in upcoming US data releases could easily prompt markets to fully price in an October Fed hike, which keeps ING cautious about calling a dollar top.
ING said USD/JPY's rapid rally may draw Japanese intervention, following last week's reported rate check, and that could spill into broad dollar weakness. Investors are also watching a summit between US President Donald Trump and Chinese President Xi Jinping, with Pesole saying positive headlines would likely show up more in the Australian and New Zealand dollars.
Bank of England flags rate-rise risk
Separately, Bank of England deputy governor Clare Lombardelli told the Sixth Biennial Conference on Macroeconomic Policy in Warsaw that the energy shock tied to the Middle East conflict is likely to keep pushing UK inflation higher in the coming months. She said policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity. Lombardelli was one of six Bank policymakers who voted to hold rates last week, outvoting three colleagues who backed a rise.
Meanwhile, the pound slipped 0.1% to $1.322, its lowest level since July 1, as traders anticipated the Federal Reserve is more likely to raise interest rates in October.
Sources: Investing.com, The Guardian
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