Pound Weakens as Dollar Strengthens on Euro Sell-Off

The pound sterling edged lower on Monday, reflecting broader currency market trends driven by a surging U.S. dollar. The euro, meanwhile, slipped toward its lowest levels in a year, contributing to the dollar’s strength. As of 04:31 ET (08:31 GMT), sterling was down 0.04%, while the euro fell 0.43% to $1.1204.

Chris Turner, global head of markets at ING, noted that the dollar is 'pushing smartly to new highs of the year,' with the euro’s decline acting as a key driver. The euro accounts for 58% of the dollar index basket. Turner identified 102.85 as the next potential target for the dollar, citing stronger expectations for U.S. monetary policy tightening compared to other central banks, particularly the European Central Bank (ECB).

Despite a weaker-than-expected September jobs report, the dollar remained resilient, with markets anticipating no Fed rate change in late October but a hike in December. Upcoming economic data, including ISM services figures and the FOMC minutes, are expected to further support the dollar, according to ING. Turner emphasized that the pound’s movement is largely a byproduct of dollar strength and euro weakness, rather than UK-specific factors.

The euro is facing additional pressure due to concerns over French fiscal policy, following last week’s sell-off in French debt. Turner suggested that investors may avoid French debt for now, pending progress on the country’s budget submission in a divided parliament. The ECB is also under scrutiny, with expectations that it will maintain a tough stance on inflation while remaining prepared to intervene if the French debt sell-off worsens.

ING maintains its target range for the euro at 1.1100/1.1120, with a potential extension toward 1.10. Turner described the cyclical outlook as negative for the coming months, though a positive surprise could come from U.S. midterm election results prompting policy shifts that might unsettle dollar-heavy portfolios.