The US Dollar has maintained its strength against major currencies, including the British Pound, as global bond yields surge and risk appetite diminishes. On Friday, the GBP/USD pair traded just above 1.3200, remaining close to the four-week lows of 1.3180 reached on Thursday. The Pound is set for its fifth consecutive weekly decline, pressured by the robust US Dollar and a rout in global bonds. Investors are closely watching the US Nonfarm Payrolls report, with market consensus expecting 90,000 new jobs in September and the unemployment rate steady at 4.1% [1][2].
Fed officials have contributed to cooling expectations of back-to-back rate hikes, with Dallas Fed President Lorie Logan advocating for at least a 50 basis point hike to control inflation, and Minneapolis Fed President Neel Kashkari projecting one more rate hike before year-end [1]. ING’s Chris Turner notes that comments from Fed Vice Chair Philip Jefferson and John Williams have led to a drop in October rate hike pricing to 28% from 70% a week ago, with markets now anticipating the next hike in December [2]. Despite the correction in US short-dated yields, the Dollar remains resilient, supported by solid US labor data and high energy prices. ING sees the DXY index targeting the 102.85 level, after breaking to a new high above 101.80 [2].
Strategists at Brown Brothers Harriman attribute the upward trend in longer-term bond yields to tighter expected policy paths and rising real term premia, with long-run inflation expectations still well anchored [1]. The French debt sell-off has triggered a reassessment of global rate expectations, but US yields have only corrected modestly, further supporting Dollar strength, especially against the euro [2].
In the UK, the economic calendar was empty on Friday, but Thursday saw the S&P Global Manufacturing PMI revised lower, with output showing the weakest growth in six months. This offset some positive sentiment from Bank of England policymakers, including Governor Bailey, who hinted at higher interest rates ahead, adding pressure to the Pound [1]. ING analysts believe that even a downside surprise in the US payroll headline number is unlikely to significantly impact US rates or the Dollar, given the low growth in the US labor force [2].
CONCLUSION
The US Dollar continues to outperform its peers, buoyed by global bond market volatility, resilient US economic data, and shifting Fed rate hike expectations. Both sources highlight the Dollar's ability to hold or extend gains, with analysts targeting further upside for the DXY index. The British Pound remains under pressure, with weak UK manufacturing data and cautious Bank of England signals failing to offset Dollar strength.