USD

The dollar regained momentum yesterday, with the DXY index advancing nearly 0.7%. A key factor was commentary from Austan Goolsbee, typically viewed as one of the most dovish voices on the Federal Reserve. His recent remarks aligned with the more guarded message expressed by Chair Powell and others this week. Goolsbee emphasised that while hiring has cooled somewhat, the labour market remains solid and inflation is still edging higher. He expressed unease with cutting interest rates in the current climate, particularly if rising prices are seen as a temporary side-effect of tariffs.

This reinforces the perception that the Fed’s policy path will be dictated by incoming data, keeping the dollar in a strong position. Weak non-farm payroll figures over the summer appeared more a reflection of uncertainty than direct tariff effects, and a rebound in employment is not out of the question as businesses adjust to the new trade environment. Markets are currently pricing around two quarter-point cuts by year-end, though we believe expectations for two reductions are too aggressive.

GBP

Sterling slipped against the firmer dollar, sliding to a three-week low after breaching several important technical levels. Wednesday’s 0.6% fall marked one of its weaker sessions this month, driven by the broader rebound in the greenback. Powell’s remarks showed little appetite for accelerating rate cuts, prompting traders to scale back easing bets, while supportive U.S. fiscal conditions further strengthened the outlook for the dollar.

By contrast, the UK’s growth backdrop looks fragile. Despite a relatively firm policy stance from the Bank of England, slowing activity leaves sterling exposed. Gilt yields are climbing as fiscal concerns grow, undermining rate-driven support. Governor Andrew Bailey added to pressure by suggesting interest rates still have “further to fall”, citing confidence that inflation has peaked and will gradually ease. That stance brings the possibility of another cut into play, which would likely weigh further on the pound.

Sterling currently faces support near $1.3400, with the September low at $1.3333 the next area of interest if downward momentum continues. On the upside, a recovery above the 21-day moving average at $1.3520 would be needed to relieve pressure.

EUR

The euro retreated roughly 0.65% against the dollar yesterday, giving back gains after earlier strength. Support for EUR/USD has formed around 1.1725, but the near-term trajectory remains tied to U.S. data and shifting Fed expectations. Markets initially over-priced rate cuts, before adopting a more balanced outlook that helped the euro climb to yearly highs. The recent hawkish repricing, however, pulled it lower.

Additional weakness came from Germany’s latest Ifo survey, which disappointed on both current conditions and expectations. Sentiment that had previously been propped up by fiscal optimism is now catching up with a harsher reality: slower growth, the drag from tariffs, and a stronger euro reducing export competitiveness. Without fresh positive data, the common currency looks likely to remain under pressure in the near term.

Looking ahead

Investors will focus on weekly jobless claims today and the PCE inflation report tomorrow for clearer guidance on the Fed’s next moves. Both releases could shape how markets reassess expectations for further easing this year. For sterling and the euro, domestic headwinds add vulnerability, leaving both at the mercy of U.S. economic signals and the dollar’s resilience.