Investing.com — Sterling traded slightly lower on Monday while the euro fell further, as AI-driven stock market jitters, which have pulled U.S. rate expectations lower, kept the dollar’s safe-haven credentials in question.
GBP/USD was down 0.11% at $1.3314, while EUR/USD fell 0.31% to $1.1203, its lowest close-equivalent level since Oct. 14, as of 04:25 ET (08:25 GMT).
The euro also slipped to a session low near $1.1182 in early trading. EUR/GBP fell 0.23% to 0.8414, near a 52-week low.
The U.S. two-year OIS/SOFR rate has dropped 25 basis points since the Oct. 14 U.S. CPI print, “mammoth moves considering they have been driven almost entirely by AI concerns, with effectively no macro input,” said Francesco Pesole, FX strategist at ING.
“Markets appear to have a clear reaction function in mind: stock market turmoil is enough to drastically reduce Federal Reserve tightening plans, even with inflation running hot,” Pesole said.
He added the dollar “may actually lag many other G10 currencies if stock market instability originates in tech/AI,” but said ING does “not feel this marks the start of a major USD downtrend.”
The FOMC is in its pre-meeting communication blackout, so no Fed speakers are due, and the U.S. calendar is light this week.
ING described Fed policymakers as unlikely to “send a dovish message at the October meeting,” a hawkish-leaning read at odds with market pricing. “A December Fed hike remains a likely outcome,” Pesole said.
He added that a return to 101 in the dollar index “remains possible over the coming weeks, but we do not see much more downside beyond that for now.”
The euro was pressured by France, where “continued widespread protests… over the weekend should weigh on domestic stocks and could spill over into the bond market,” Pesole said.
The 10-year OAT-Bund spread is hovering around 135-140 bps. ING puts short-term fair value for EUR/USD at 1.137-1.139, implying undervaluation of 1.3-1.5%. Friday’s eurozone PMI is the week’s main data point, with a modest softening expected, and Germany’s ZEW index is due Tuesday.
ING’s month-ahead EUR/USD target remains 1.130. Pesole called the balance of risks “fairly even”: downside from French fiscal stress, upside if further AI concerns hit Fed rate expectations.
Original Article
Sterling today: Pound edges lower; AI jitters cloud dollar outlook
Eurozone yields firm as French unrest widens spread risk
Dollar holds losses; yuan hits 4-yr high after China Q3 GDP beat
