Investing.com — Sterling traded narrowly higher on Friday while the euro edged up, as a global bond sell-off reinforced a risk-off environment that continued to support the dollar broadly, capping gains across major pairs.
GBP/USD rose 0.09% to 1.3233 and EUR/USD gained 0.12% to 1.1392, as of 05:00 ET (09:00 GMT).
Rising back-end yields triggered a shift in global risk sentiment that allowed the dollar to consolidate recent gains even as valuations begin to look stretched relative to short-term fundamentals, according to ING.
Oil prices remained elevated after the UN General Assembly summit failed to generate optimism over a Gulf resolution.
A brief correction on reports of US-Iran talks to reopen the Strait of Hormuz was fully retraced within hours, underscoring deep market scepticism over any imminent de-escalation. “We remain cautious about calling the end of this USD rally,” said Francesco Pesole, FX Strategist at ING.
“We may see $110/bbl for Brent before the end of the month, with the dollar finding fresh support from the energy story.”
Markets continued to price aggressive Federal Reserve tightening, with the 2-year SOFR rate rising nearly 20 basis points over the past 48 hours.
Pricing for an October hike reached 18 basis points, with two full hikes priced in by January and nearly four by July 2027, reflecting the cumulative effect of hawkish Fed commentary on rate expectations.
U.S. economic data over the coming weeks remains the key near-term catalyst, with an upside surprise seen as the primary trigger for a further leg higher in the dollar.
Sterling’s modest advance was not driven by UK-specific fundamentals. No material domestic economic or political catalysts were in play on Friday; the pair’s direction was dictated entirely by global risk appetite and the energy market dynamic that is underpinning dollar demand across the board.
Euro-specific headwinds compounded the dollar pressure on EUR/USD. French 10-year yields were trading 110 basis points above German bunds, and political uncertainty over the French budget persisted despite reports that Marine Le Pen may back the proposal.
“Economic resilience (yesterday’s Ifo index mirrored strong PMIs) is at least partly being offset as a EUR-positive factor by wider eurozone spreads,” Pesole said. “It is a narrative that is unlikely to help the euro in the current environment.”
