Sterling traded narrowly higher on Tuesday, edging up amid a broader environment in which a firm dollar and rising global bond yields capped currency moves. As of 04:15 ET (08:15 GMT), GBP/USD was quoted at $1.3229, up 0.08%, while EUR/USD stood at $1.1229, a rise of 0.06%.
Francesco Pesole, an FX strategist at ING, said the dollar "has continued to find support at the start of this week," pointing to the euro’s "idiosyncratic weakness" as well as global bond yields that "keep pushing higher." He added that strong equity markets likely restrained further dollar appreciation, even as the domestic backdrop remained "constructive for the greenback."
Economic releases and central bank commentary are shaping expectations. U.S. ISM services eased to 54.9 in September from 55.4, versus a 55.0 consensus, but remained firmly in expansion territory. Pesole described the ISM result as "slightly hawkish news if anything (especially on jobs and prices), but not enough to materially alter the Fed narrative."
ING said markets are comfortable with an October policy rate hold by the Federal Reserve if September core CPI, due on Oct. 14, prints at 0.2% month-on-month, with a December rate increase its base case.
A clutch of Fed speakers is scheduled to appear, with Williams, Musalem, Bowman and Schmid due to speak on Tuesday, accompanied by trade data and ADP payrolls. ING suggested Wednesday’s FOMC minutes may have a "relatively contained" market impact compared with other events on the calendar.
In the UK, the main domestic economic release for the day was September construction PMI, but focus was squarely on Bank of England commentary. Catherine Mann, who voted for rate hikes in July and September, was slated to speak. Later in the week, Megan Greene and Huw Pill - both supporters of prior hikes - were scheduled to speak on Thursday, alongside Andrew Bailey and Clare Lombardelli, who are viewed as the more neutral voices likely to influence the November decision.
ING highlighted how markets currently price in 21 basis points of tightening next month, 36 basis points by year-end and 89 basis points by next June - a pricing path the bank considers "far too hawkishly priced." Pesole noted that converting those market rates into a sustained EUR/GBP rally is difficult given elevated oil prices.
The euro began the week at the bottom of the G10 performance table, according to ING, as turbulence in French bonds added a fiscal risk premium and reduced expectations for ECB rate hikes. ING said March pricing has fallen to 45 basis points from 80 basis points on Sept. 24, and that the two-year EUR/USD swap differential sits at -167 basis points, which the firm described as the widest since August 2025.
EUR/USD recovered to just above 1.120 on Monday after dipping to 1.1160, but ING said it lacked confidence in a sustained rebound. The bank sees scope for EUR/USD to "test 1.110 or even 1.100 if bond market stress intensifies" and expects EUR/GBP to retest mid-July lows near 0.846, with 0.840 possible "before clear support emerges." ING noted that this outlook could change if French market stress eases - markets are awaiting details of Marine Le Pen’s counter-budget - or if Bank of England commentary strengthens the case for a November hike. ING did not provide a specific GBP/USD target or a timeframe for EUR/USD moves.
Overall, currency moves remain modest as investors balance the supporting effect of higher yields on the dollar with incoming central bank commentary and data that could influence policy expectations in both the United States and the United Kingdom.