Pound Dips as Euro Weakness Boosts Dollar

The British pound dipped slightly on Monday as the euro tumbled toward its lowest point in a year. The dollar gained strength amid expectations that U.S. interest rates will remain higher for longer than those of other major central banks. Sterling fell 0.04% to $1.3235, while the euro dropped 0.43% to $1.1204.

Chris Turner, global head of markets at ING, noted that the euro’s decline is driving the dollar’s rise. The euro makes up 58% of the dollar index basket, and Turner identified 102.85 as the next potential target for the dollar. He attributed the dollar’s resilience to stronger expectations for U.S. monetary policy tightening compared to other central banks, particularly the European Central Bank (ECB).

The pound’s movement is largely influenced by the dollar’s strength and euro’s weakness rather than U.K. fundamentals. Sterling did gain against the euro, reflecting a growing risk premium in the single currency. French fiscal concerns have added pressure on the euro, with investors wary of French debt amid a divided parliament.

ING maintains its target for the euro at 1.1100/1.1120, with a possible drop toward 1.10. Turner described the cyclical outlook as negative for the coming months but suggested that a policy response from U.S. midterm election results could surprise markets by unnerving investors who are currently overweight in dollars.