Dollar Weakness Boosts Sterling and Euro Amid Fed Hike Speculation

Sterling and the euro gained against the dollar on Thursday, while the yen rose sharply after an overnight slide in the US currency. The pound added 0.09% to 1.3499, and the euro rose by 0.18% to 1.1609. This move was largely driven by broad dollar weakness tied to the yen's shock, with no major UK data or Bank of England commentary cited as a catalyst.

Francesco Pesole, FX strategist at ING, noted that sterling's gain was not due to any specific UK fundamentals but rather the broader dollar weakness. He also stated that the bar for driving the Fed away from a September hike is fairly high, especially for second-tier data.

The euro may be over-hawkish ahead of next week's European Central Bank meeting, where a hike is widely expected. According to ING's macro team, policymakers may be more concerned about widening European bond spreads than second-round inflation risk at this point, arguing for a less hawkish message than what markets may be expecting.