Sterling today: Pound slips as yen-fuelled dollar uncertainty keeps G10 on edge

On Tuesday, the British pound slipped slightly, while the euro also declined, as the Japanese yen continued to fuel a downward trend in the dollar across the G10 currencies. The GBP/USD rate fell 0.12% to 1.3523, and the EUR/USD rate dropped 0.11% to 1.1610 at 04:17 ET (08:17 GMT). The main story for the day was the yen's strong rally, pushing the USD/JPY rate past the critical 155.0 level and further to 153.0 overnight, driven by thin liquidity due to the U.S. Labor Day holiday.

Francisco Pesole, an FX strategist at ING, noted that this situation primarily reflects a hawkish Bank of Japan and expectations of increased domestic asset ownership by the Government Pension Investment Fund. However, this move seems overdone on short-term fundamentals, with support expected at 152 and a potential drop to 150. Despite strong U.S. payrolls and high energy prices (Brent crude near $100 per barrel), the dollar's support remains limited to around 15 basis points of Federal Reserve tightening for September.

The U.S. calendar is otherwise empty. The euro's rise was modest, as it was largely influenced by a revision in eurozone GDP growth to 0.6% from 0.4% quarter-on-quarter, driven by robust Irish multinational output. However, rising energy prices have pushed the eurozone's commodity terms of trade below their March low, adding another challenge.

The ECB meeting on Thursday may bring dovish risks, according to ING's analysis. ING expects EUR/USD to reach 1.150 over the next few weeks, anticipating a September Fed hike. A weaker-than-expected Friday CPI print or a clear Fed dovish shift would be necessary to change this outlook. For GBP/USD, ING sees a biased move to the euro and does not foresee a near-term recovery in sterling unless there is a significant change in Bank of England expectations.