Investing.com — Sterling traded lower on Wednesday while the euro was little changed near its lowest levels of the year, as a firmer dollar and caution before a Federal Reserve decision weighed on European currencies.
Sterling was down 0.18% against the dollar at $1.3283, while the euro inched down 0.01% at $1.1125, as of 06:17 ET (10:17 GMT).
Receding fears of an AI-driven equity sell-off allowed markets to refocus on dollar-supportive themes after strong third-quarter results from SK Hynix. Nasdaq futures were up 0.6%.
“A little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,” said Chris Turner, global head of markets at ING.
The dollar index was edging back toward its yearly highs, around 102.35 per HSBC data. Turner said “a move through 102.50 opens up 103.00.”
The Fed concludes its policy meeting later on Wednesday. Turner said he suspects Chair Warsh “will not want to tie himself in knots by citing a tightening in financial conditions,” having “learnt from the unruly market response to his press conference in July.”
ING expects the focus on restoring monetary stability to keep the message leaning hawkish and the dollar supported. The Bank of Canada also decides on rates, and Alphabet and Microsoft report earnings after the U.S. close.
The UK budget is due later on Wednesday, but ING does not expect it to have “too much say” on the Bank of England’s tightening prospects, though a surprise on minimum wage adjustments could ripple through money markets.
ING rates strategist Michiel Tukker estimates a 20 basis point risk premium in 10-year gilt yields, some of which could unwind. Turner noted the UK “looks to be one of the few G7 economies heading in the right fiscal direction into 2027.”
The euro was pressured by broad dollar strength and an unresolved French budget crisis. The European Central Bank’s lending survey showed tighter conditions and an unexpected fall in corporate loan demand ahead of Thursday’s press conference.
“It may be too early for the ECB to pour cold water on market tightening expectations,” Turner said, “but the risks look to be building in that direction.”
