Sterling edged higher on Friday, reaching $1.3545, up about 0.15%, as a broadly weaker U.S. dollar offset worries about UK gilt volatility and fiscal pressures. The euro also inched up, trading at $1.1628, a 0.02% rise, and edging toward the 1.1650 level.
The move was sparked by Federal Reserve Governor Christopher Waller's remarks on Thursday, which shifted market expectations toward a modest Fed tightening path. Market pricing now places the probability of a September Fed rate hike at 50%, with a 25‑basis‑point hike still the most likely outcome. Short‑dated U.S. Treasury yields fell five basis points following the comments.
In the euro‑sterling pair, EUR/GBP consolidated after breaking above 0.86 in the previous session. ING analysts see the pair trading in a 0.8550–0.8600 range before a potential rise toward 0.87 in the fourth quarter.
London market participants noted that up to 60 basis points of BoE tightening remain priced into UK money markets. Bank of England Governor Andrew Bailey is slated to speak at 10:50 a.m. CET on Friday, while new Chancellor John Healey is expected to deliver his first major fiscal speech early next week.
U.S. labor market data are also in focus. Consensus forecasts for the upcoming non‑farm payrolls report a gain of 55,000 jobs, with a “whisper” estimate near 30,000, and the unemployment rate expected to hold at 4.1%.
ING’s Global Head of Markets for the UK and CEE, Chris Turner, said investors appear to be concluding that any Fed tightening cycle will be modest and unlikely to disrupt a relatively benign investment backdrop, presenting a mildly negative outlook for the dollar in the short term. He added that a stronger-than‑expected NFP number could push the dollar lower.
Other headlines include the upcoming Saxony‑Anhalt regional elections in Germany on Sunday and ongoing debate in the market about the Fed’s policy trajectory after contrasting remarks from Fed Chair Kevin Warsh a week earlier.
