Investing.com — Sterling traded lower on Thursday while the euro also fell, as a global bond sell-off pushed U.S. and UK long-dated yields to multi-decade highs and kept the dollar near its strongest levels of the year.
GBP/USD was down 0.38% at $1.3215, while EUR/USD fell 0.37% to $1.1288, as of 04:53 ET (08:53 GMT).
The U.S. 10-year yield rose to 5.340%, near a 52-week high. The dollar index tested the year’s high at 101.80. “Dollar debasement fears have been set aside for now as the cyclical story takes centre stage,” said Chris Turner, global head of markets at ING.
“Barring some breakthrough in US-Iran negotiations, it looks like the dollar will stay bid in October,” he said, noting the index has risen in seven of the last 10 Octobers.
Softer-than-expected August PCE inflation barely dented rate expectations: the one-month USD OIS rate priced one year forward briefly fell 5bp, then retraced it all by the end of the U.S. session. ADP data pointed to accelerating payrolls.
Investors await jobless claims and ISM manufacturing, with a headline 55 expected. “The sense is that the AI investment boom is seeping into broader parts of the US economy,” Turner said. Fed voters Neel Kashkari (1330 CET), whom ING called “a noted hawk”, and Chris Waller (1600 CET) speak today.
ING said Waller’s remarks would be “more interesting should he stray away” from economic data into monetary policy. Friday’s nonfarm payrolls are the next major catalyst.
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Sterling was hit by both dollar strength and the bond rout. UK 30-year gilt yields rose to 6%, the highest since nearly three decades, and London’s FTSE 100 fell nearly 2%, adding pressure on Chancellor John Healey ahead of his first Budget this month.
Sterling’s fall slightly exceeded the euro’s, though ING did not attribute the gap to gilts. Nationwide said annual house price growth slowed to 0.8% in September from 1.6%.
“Market activity and house prices have remained subdued in recent months, in part reflecting the uncertain economic backdrop,” said chief economist Robert Gardner.
ING noted EUR/GBP fell this week after Prime Minister Andy Burnham called for a debate on closer EU ties, possibly including rejoining. “We are years away from any clarity here,” Turner said, flagging a UK-EU summit around Nov. 20.
Turner said the euro’s drop reflects “the hawkish reassessment of Fed policy rather than any independent euro weakness,” but called the OAT-Bund spread’s widening to 127bp “quite an alarming move” that could add risk premium and constrain the ECB’s tightening cycle.
