Sterling Edges Higher as Dollar Strength Limits Gains

The British pound showed modest gains on Tuesday, though its upward movement was limited by a strong U.S. dollar. Sterling rose 0.08% against the dollar to $1.3229, while the euro climbed 0.06% to $1.1229. Francesco Pesole, an FX strategist at ING, noted that the dollar has remained resilient due to rising global bond yields and the euro's ongoing weakness.

The U.S. ISM services index eased slightly in September but stayed in expansion territory, reinforcing the Federal Reserve's narrative. Markets anticipate a December rate hike, with key Fed speakers and economic data releases expected this week. Meanwhile, the Bank of England's upcoming speeches from Catherine Mann and other officials will be closely watched for signals on future policy moves.

ING predicts that the euro may test lower levels, potentially reaching 1.110 or even 1.100 if bond market stress continues. The firm also expects EUR/GBP to retest mid-July lows near 0.846, with 0.840 possible before support emerges. The outlook could change if fiscal concerns in France ease or if the BoE signals a November rate hike.