FX Focus: Pound gains against euro and dollar as investors fret over Fed's rate hike

The pound edged slightly higher against the dollar and the euro on Monday (12 September), as investors around the world grew increasingly jittery over the prospect of the Federal Reserve raising interest rates this month.

Sterling, which had lost ground earlier in the day, was trading 0.13% higher against the dollar, exchanging hands at $1.3285 and was up 0.19% against the euro, fetching €1.1830.

Markets worldwide plunged amid increasing expectations the US central bank could hike interest rates this month. Economic data released over the past couple of weeks had seemingly all but ruled out the eventuality, but comments from senior Fed officials seemed to have turned the tide.

On Friday, Daniel Tarullo and Eric Rosengren – both voting members on the Federal Open Market Committee this year – suggested a hike was much more likely than is currently priced in by investors.

Fear of a rate hike boosted the dollar, which climbed 0.13% against the euro to 0.8909 euro cents. The greenback, however, was firmly on the back foot against the yen, slumping 0.84% to ¥101.83.

The US currency could move further during the session, with a number of Fed members set to speak ahead of the bank's monetary policy committee meeting due on 21 September. Fed Governor Lael Brainard is scheduled to speak at the Chicago Council on Global Affairs, while Atlanta Fed President Dennis Lockhart appears before the NABE conference in Atlanta, and Minneapolis Fed President Neel Kashkari at a question-and-answer session in St Paul, Minnesota.

"Further hawkish commentary and any indication that a rate hike is likely could trigger another wave of repricing for September and December, which in turn could see the dollar and Treasury yields on the rise again and equities coming under pressure," said Oanda's senior market analyst Craig Erlam.