Sterling eased 0.05% to $1.3534 on Wednesday as the dollar found some footing after a broad-based selloff, with the pound's drift driven almost entirely by dollar positioning rather than any UK catalyst. Traders now look to Friday's US CPI report and next week's Fed decision for the next move.
GBP/USD slipped 0.05% to 1.3534 as of 06:05 ET (10:05 GMT) on Wednesday, while EUR/USD held flat near 1.1625. No domestic UK data or policy catalysts featured in the session, so the pound's move stemmed almost entirely from broader dollar positioning rather than anything happening at home.
The dollar's failure to capitalize on supportive fundamentals is the main talking point in currency markets right now. According to ING: "Dollar price action this week has been a little disappointing/confusing," said Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at the bank. Higher energy prices from an escalation in the Gulf should direct more trade flows toward the US at the expense of Europe and Asia, yet the greenback has failed to rally in response.
Turner pointed to a fragile USD/JPY as a key drag: global macro hedge funds are positioning for a downside break of 150 over the coming months. He also flagged the tight negative correlation between elevated global equities and the dollar as another headwind.
Traders are awaiting Friday's August CPI report, which ING expects to be the final piece of the puzzle for the Fed's policy decision next week. The bank forecasts a 25 basis-point rate hike.
Turner said ING does not see a strong case for the dollar index to immediately break support at 98.55/65. A break, if it comes, would likely be driven by USD/JPY, potentially pulling the index down to 98.00.
Source: Investing.com
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