Dollar Rally Weighs on Pound as Oil Prices Surge

The British pound slipped to below $1.35 on Monday as rising oil prices and expectations of a hawkish Federal Reserve rate hike lifted the US dollar broadly.

The euro also fell against the dollar, with sterling trading lower by 0.33% at $1.3482 and the euro down 0.55% to $1.1535, breaking below its previous level of $1.1600.

Francesco Pesole, an FX Strategist at ING, attributed the decline in sterling to broad dollar strength, rather than any UK-specific fundamentals. He noted that markets are pricing a near-unanimous 22bp Fed hike on Wednesday and that the Fed 'may retain a hawkish tone given the bond market's demand for policy credibility and recent rise in energy prices.'

Pesole also mentioned that traders are watching for any signs of fiscal stimulus from the White House ahead of the midterms, which could trigger a rise in the USD risk premium.