The British pound remained stable on Wednesday, while the euro moved closer to its recent highs against the U.S. dollar.
However, both currencies struggled to record stronger gains. The dollar remained resilient despite an improvement in global risk sentiment.
At 04:28 ET, or 08:28 GMT, GBP/USD traded at 1.3466, representing a daily gain of 0.13%. Meanwhile, EUR/USD rose 0.08% to 1.1541.
Dollar Remains Firm Despite Improving Risk Sentiment
According to ING currency strategist Chris Turner, the dollar’s ability to hold firm despite falling oil prices and stronger equity markets was the main development in foreign exchange trading.
The U.S. Dollar Index remained close to the 100 level. This came even as investors responded positively to reports of progress toward a possible ceasefire between the United States and Iran.
Brent crude also slipped below $80 per barrel. Normally, falling oil prices and rising stock markets would reduce demand for the safe-haven dollar.
Nevertheless, the greenback avoided a significant decline.
Federal Reserve Rate Expectations Support the Dollar
ING linked the dollar’s resilience to expectations that the Federal Reserve could still raise interest rates at its September 16 meeting.
Markets were pricing approximately 14 basis points of possible tightening. This was lower than the 16 to 17 basis points expected at the beginning of the week.
Expectations declined after the latest JOLTS report showed softer U.S. job openings. The data suggested that demand for workers may be beginning to cool.
Even so, investors have not completely ruled out another Federal Reserve rate increase.
US Employment Reports Move Into Focus
Friday’s U.S. nonfarm payrolls report for July is expected to be the most important market event of the week.
Before then, traders will assess the ISM services index and the ADP private employment report. Economists expect the ADP figures to show an increase of more than 65,000 jobs.
ING noted that recent regional surveys continue to indicate solid activity across the U.S. services sector.
As a result, the dollar may avoid a sharp sell-off before the release of the official payroll figures.
Stronger-than-expected employment data could revive expectations of tighter Federal Reserve policy. In contrast, weaker figures could reduce the likelihood of another rate hike and place pressure on the dollar.
Pound Movement Is Driven by External Factors
Sterling’s latest advance was not primarily caused by developments in the United Kingdom.
Instead, the pound was reacting to movements in the dollar and broader global market sentiment.
The Bank of England’s latest policy meeting continues to influence the outlook for sterling. Policymakers voted by six to three to leave interest rates unchanged.
This represented a more hawkish split than the seven-to-two vote expected by financial markets.
However, Bank of England Governor Andrew Bailey reduced expectations of an imminent rate increase. He said the process of bringing inflation lower remained on track.
Bank of England Rate Cuts Remain Possible
Several Bank of England policymakers indicated that interest rate cuts could return to the agenda if tensions in the Middle East continue to ease.
Lower geopolitical risk could reduce energy prices and weaken inflationary pressure in the United Kingdom.
This dovish signal encouraged traders to scale back expectations for UK interest rate increases during 2026.
Therefore, although the pound remained above $1.34, it received limited support from domestic monetary policy expectations.
Euro Struggles Despite Strong Economic Data
The euro also recorded modest gains against the dollar. However, ING described the currency’s performance as relatively weak.
The euro struggled to build momentum despite stronger-than-expected economic data from the eurozone.
The region’s economy expanded by 0.4% during the second quarter. This was its fastest quarterly growth rate since early 2025.
Eurozone inflation also accelerated to 2.9% in July. The stronger inflation reading kept the possibility of a September European Central Bank rate increase under consideration.
Still, these developments were not enough to generate a decisive euro rally.
Drought Conditions Create Risks for Europe
ING highlighted drought conditions and low river levels as potential risks for the European economy.
Several European industries depend on rivers to transport fuel, raw materials and manufactured products.
Lower water levels can restrict shipping capacity and increase transportation expenses. This could place additional pressure on industrial production and economic growth.
These concerns may be offsetting some of the support created by stronger eurozone data and the broader rally in global equity markets.
Key Levels to Watch for EUR/USD
ING identified the 1.1550 to 1.1560 area as an important resistance zone for EUR/USD.
A sustained move above this range could allow the currency pair to advance toward 1.1615 or 1.1620.
However, further gains would likely depend on continued improvement in global risk sentiment and stronger economic momentum across the eurozone.
A renewed decline could occur if traders increase their expectations for a Federal Reserve rate hike. The euro could also come under pressure if progress toward a Gulf ceasefire stalls.
For now, both the pound and the euro remain supported by improving market sentiment. Nevertheless, the dollar’s resilience and uncertainty surrounding Federal Reserve policy continue to limit their upside potential.
