Investing.com — Sterling traded lower on Monday while the euro edged higher, as investors positioned for a packed week of central bank meetings and Wednesday’s Federal Reserve decision, with energy prices and Middle East tensions keeping the dollar supported.
Sterling was down 0.22% against the dollar at $1.3348, while the euro was up 0.09% at $1.1213, as of 05:35 ET (09:35 GMT).
“The balance of risks suggests that the dollar can probably hold onto its gains,” said Chris Turner, global head of markets at ING.
“Energy prices remain at their highs, and the arrival of a third US aircraft carrier group in the Gulf makes further escalation in the Middle East more likely than not.”
Turner expects the DXY dollar index to hold a 101.45-101.85 range today, and sees no need for a drop to 101.25 “unless US tech drags US equities sharply lower.”
Markets and economists expect the Fed to hold rates on Wednesday. “It’s the perfect meeting to keep rates on hold,” ING economists led by James Knightley said in a recent note.
Vice Chairs Philip Jefferson and Michelle Bowman and Governor Chris Waller have signalled no rush to act, a neutral stance, and Chair Kevin Warsh declined to talk up a hike at the IMF meetings, also neutral.
Beth Hammack, Neel Kashkari and Lorie Logan, who voted to hike in July, are hawkish and could dissent again. ING forecasts a 25 basis point hike in December. Big tech earnings from Alphabet and Microsoft on Wednesday are also in focus, and November CPI is due the day after the Fed meeting.
The euro found support from a resilient business outlook. “Friday’s release of flash October PMIs for the eurozone remained surprisingly resilient,” Turner said, though France was the exception.
Moody’s maintained France’s Aa3 rating on Friday, narrowing OAT-Bund spreads, but Turner said “we will need to see concrete and material progress on the French budget over the coming months to take pressure off the euro.”
The eurozone holds a central bank meeting this week; the ING notes do not preview it. German Ifo sentiment is due today.
Turner favours 1.1250/70 “capping EUR/USD upside in the near term” and sees “the 1.1180 support level as vulnerable this week,” citing “a 1-2% risk premium” in the euro. A downside Ifo surprise could hit the euro, while a sharp US equity sell-off could weaken the dollar. ING gave no sterling target.
Original Article
Sterling today: Pound slips as dollar holds firm ahead of Fed decision
Currencies idle ahead of five-bank gauntlet; euro gains on Moody’s reprieve
French yields retreat from 2002 highs as Moody’s holds; ECB in focus
