The pound slipped against the dollar on Wednesday after UK private-sector employment data failed to impress, while the greenback strengthened across the board heading into the Federal Reserve's policy meeting.
GBP/USD fell to 1.3470, down 0.23% as of 04:07 ET, marking the weakest level for sterling since late August. EUR/USD also edged lower to 1.1537, a drop of 0.11% over the same period. The dollar index climbed 0.27% and was eyeing the psychologically important 100.0 level, building on its strongest session since Kevin Warsh's comments at the Jackson Hole symposium.
UK private-sector payrolls declined by 34,000 in August, according to the main figure from the latest survey, though a separate headline noted a fall of 26,000. Employment grew just 0.8% year-on-year, underscoring persistent weakness in the labor market. Hiring in hospitality and retail contracted at more than a 3% annualized rate, adding to concerns about the domestic economy's trajectory.
Wage growth settled near 2.9%, a level consistent with the Bank of England's 2% inflation target but well below the pace that would compel a hawkish shift. James Smith, ING's UK economist, said the economy is far less susceptible to another sustained inflation wave and expects the BoE to hold rates steady at its Thursday meeting, with a 6-to-3 split rather than a pivot toward tighter policy. "A hawkish surprise looks unlikely absent a further run-up in energy prices," Smith added.
The dollar's advance has been fueled by a combination of front-end rate expectations, rising energy prices and softening risk sentiment, Francesco Pesole, FX strategist at ING, said in a research note. A risk-off environment combined with a hawkish surprise from the Fed could push EUR/USD toward ING's 1.150 short-term target, he wrote.
Investors are also monitoring whether Treasury Secretary Scott Bessent will authorize additional bond-buyback intervention after a $6 billion operation last week fell short of market expectations. "Larger unscheduled buybacks should be dollar-negative regardless of their effectiveness in capping yields," Pesole noted.
Beyond the UK, the 10-year U.S. Treasury yield touched 5.0% this week, roughly 50 basis points above the estimated neutral range of 4% to 4.5%. Meanwhile, Germany's ZEW Survey Expectations Gauge was expected to rise to 40 from 34.
The pound also weakened against the euro, with EUR/GBP trading around 0.875 following a 0.5% decline since Friday. ING maintains a medium-term target of 0.87 for the pair.
Looking ahead, the Federal Open Market Committee's announcement on Wednesday is widely expected to deliver a rate hike, while the BoE's policy decision on Thursday will be closely watched for any signs of shifting rhetoric. The UK government faces additional pressure from a budget scheduled for late October and growing demands over devolution referendums.
