Investing.com — Sterling traded slightly lower on Monday while the euro slid toward 52-week lows, as the dollar extended gains on expectations that U.S. rates will stay higher for longer than those of other major central banks.
Sterling was down 0.04% at $1.3235 as of 04:31 ET (08:31 GMT), while the euro fell 0.43% to $1.1204.
The dollar index is “pushing smartly to new highs of the year,” said Chris Turner, global head of markets at ING, adding that the euro’s sell-off is propelling it. The euro makes up 58% of the index basket.
Turner flagged 102.85 as the next upside target. “Core support for the dollar should continue to come from the fact that expectations for the monetary policy tightening cycle remain far more resilient for the Fed than for overseas central banks – especially the ECB,” he said.
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Since late September, 30 basis points have been removed from expected ECB tightening, versus 13 bps for the Fed.
Friday’s “softish” September jobs report failed to dent the dollar, according to ING. Markets are pricing an unchanged Fed at the late-October meeting and a hike in December, a leaning ING described as hawkish.
Traders now turn to ISM services data today and Wednesday evening’s FOMC minutes, both of which ING sees as dollar-positive. The minutes could shed light on why many Fed officials projected a second hike this year in their dot plots.
The pound’s move is not being driven by UK fundamentals. It is largely a by-product of dollar strength and euro weakness.
Sterling gained against the single currency, with Turner noting that “the big declines in EUR/CHF and EUR/GBP point to a larger risk premium going into the euro.”
The euro is under pressure from French fiscal worries after last week’s sell-off in French debt. “For the time being it looks like investors will steer clear of French debt,” Turner said.
Attention is on whether the French budget submission makes headway in a divided parliament, and on ECB comments from a Frankfurt conference today. The ECB must talk tough on inflation while being expected to step in should the French sell-off get out of hand, Turner said.
ING is sticking with its 1.1100/1.1120 EUR/USD target, with the risk of an extension toward 1.10. “The cyclical story looks negative for the coming months,” Turner said.
The one surprise positive he sees would be U.S. midterm election results prompting a White House policy response, which “would unnerve a buy-side which is now overweight in dollars.”
Original Article
Sterling today: Pound slips as euro sell-off lifts dollar
Euro falls as Paris debt turmoil overshadows dovish shift in Fed rate expectations
