Pound, Euro Slide as Strong Dollar Buoys Oil Prices

The British pound traded lower on Monday, while the euro also eased, as oil prices and expectations of a more hawkish Federal Reserve kept the US dollar strong.

The dollar's strength was attributed to elevated oil prices and bets on a rate hike by the Fed, with markets pricing in 13 basis points of tightening for next month. Francesco Pesole, FX strategist at ING, said that 'the scope to keep pricing a more hawkish Fed after the September FOMC remains a key argument for further US dollar gains.'

Pesole also stated that his firm expects one final Fed hike this year, with December more likely than October, partly due to proximity to the midterm elections. He noted that 'if markets assign at least a two thirds probability to a hike by decision day, the Fed may feel compelled to act, even without full conviction.'

The dollar's strength was also influenced by oil prices, with Pesole saying that 'oil is seen as the main driver' of currency movements. He added that positive trade headlines could provide some support to the dollar.