Sterling slipped 0.12% to 1.3523 against the dollar as of 08:17 GMT Tuesday, dragged lower by a yen-fuelled selloff that clouded broader dollar sentiment across G10 currencies.
USD/JPY surged through 155.0 overnight after pushing past 153.0, fuelling a wave of risk aversion that spilled into European and pound-denominated pairs. EUR/USD dipped 0.11% to 1.1610, later settling at 1.1614, down roughly 0.10% from late Monday.
Francesco Pesole, FX strategist at ING, said the dollar’s weakness was "primarily like a JPY story rather than evidence of a broader shift in sentiment towards the dollar." Fast money was focused on a hawkish Bank of Japan and mounting expectations that Japan’s Government Pension Investment Fund would boost its holdings of domestic assets.
Sterling’s decline carried little to do with UK fundamentals. The pound acted largely as a bystander to global currency dynamics, receiving only marginal support on Monday from Chancellor John Healey’s first major fiscal speech, which signalled firm spending discipline and kept long-end gilt yields aligned with a broader global bond selloff.
Pesole warned that market pricing for the Bank of England appeared "way too hawkish," suggesting the pound could face further pressure if BoE rate expectations prove excessive relative to incoming data.
Beyond the G10, commodity prices added volatility: Brent crude hovered near $100 per barrel, briefly topping $99/bbl with futures at $99.54. Markets were also pricing in approximately 15 basis points of Federal Reserve tightening for September, ahead of Friday’s pivotal U.S. CPI release — a result Pesole called "a clear risk event" that could either entrench or unwind the current narrative.
In the eurozone, second-quarter GDP growth was revised upward to 0.6% quarter-on-quarter from an earlier estimate of 0.4%, driven by robust Irish multinational output. However, rising energy prices pushed the eurozone’s commodity terms of trade below their March low, adding a headwind to the recovery.
Looking ahead, the European Central Bank meets on Thursday with no Federal Reserve speakers or major U.S. economic data scheduled for Tuesday, amid thin liquidity around the U.S. Labor Day holiday. ING set its EUR/USD target at 1.150 over the coming weeks and identified USD/JPY support at 152, with a break opening the way toward 150.
