Pound Dips as Euro Weakness and Dollar Strength Persist

The pound sterling edged slightly lower on Monday, as the euro weakened further and the dollar continued its upward trend. Sterling fell 0.04% to $1.3235 by 04:31 ET (08:31 GMT), while the euro dropped 0.43% to $1.1204. Chris Turner, global head of markets at ING, noted that the dollar is strengthening due to expectations that U.S. interest rates will remain higher for longer than those of other major central banks.

The euro’s decline is a key factor driving the dollar’s gains, with Turner highlighting 102.85 as the next potential upside target. He emphasized that the Federal Reserve’s monetary policy tightening cycle is seen as more resilient compared to overseas central banks, particularly the European Central Bank (ECB). Since late September, the expected ECB tightening has been reduced by 30 basis points, while the Fed’s has only decreased by 13 basis points.

Despite a softer September jobs report, the dollar remained strong. Markets anticipate no change in Fed policy at the late-October meeting but expect a hike in December. Upcoming economic data, including ISM services data and the FOMC minutes, are expected to support the dollar further. The pound’s movement is largely influenced by the dollar’s strength and euro weakness rather than UK-specific factors.

The euro is under pressure due to concerns over French fiscal policy, particularly after last week’s sell-off in French debt. Investors are wary of French debt, and attention is now on the French budget submission and comments from the ECB. ING maintains a target of 1.1100/1.1120 for the euro, with a potential extension toward 1.10, as the cyclical outlook appears negative.