Dollar Rally Shows Signs of Fatigue as Sterling and Euro Gain

The British pound and euro both showed modest gains on Thursday as the US dollar's recent surge started to slow down. Sterling traded at 1.3248, up 0.05% on the day, while the euro edged to 1.1394, gaining 0.10%. The dollar's rally has accelerated, with some experts warning that it may have overshot its fundamentals.

ING FX strategist Francesco Pesole said that the move is 'starting to look stretched' and predicted a correction in the DXY index in the coming weeks, potentially returning to the 100-100.5 area if further data surprises fail to materialise.

The dollar's strength has been driven by stronger-than-expected US business activity data, which stoked bets that the Federal Reserve would keep rates elevated for longer. However, Pesole noted that any upside surprise in upcoming US data releases can easily prompt markets to fully price in an October Fed hike.