Dollar Rally Faces Test Ahead of US Jobs and Inflation Data

The pound and euro both rose on Monday as traders weighed the prospects for a sustained dollar rally ahead of key U.S. jobs and inflation data.

According to ING FX strategist Francesco Pesole, 'data could re-emerge as a primary driver for the dollar this week.'

Pesole also noted that the dollar has been looking expensive across G10 according to short-term valuation models, with dollar bulls potentially content holding around 101.0 for now but risking a pullback to 100.50.

Markets are pricing in 16 basis points of tightening for the Oct. 28 Fed meeting, down from a peak of 19bp last week following 'a good dose of hawkish Fedspeak.'

The pound's gain appears to be driven by dollar strength rather than UK-specific factors, with markets pricing more than four Bank of England hikes over the coming year at near $100.