Pound Slides as Hawkish Fed Outlook Lifts Dollar Broadly

The pound sterling slipped on Wednesday as investors priced in a more hawkish Federal Reserve path following Chair Kevin Warsh's remarks last week.

Markets expect a rate hike in September, with inflation seen as not falling quickly enough to target against a 'reasonably strong' economy, according to ING. The broker's Global Head of Markets and Regional Head of Research for UK & CEE, Chris Turner, said the cyclical Fed story can trump the dollar bearish debasement theme.

The euro also retreated, with EUR/USD falling to 1.1577, down 0.13%, as traders await the Beige Book release and a discussion with Fed Governor Christopher Waller on Thursday.

Turner expects the dollar index (DXY) to grind higher to the 100.10/20 area and possibly move higher tomorrow on the Waller event. ING also sees the pound challenging July highs near 0.94, but notes that a sell-off in long-end Treasury yields could drag the dollar lower.