Investing.com — Sterling traded lower on Friday while the euro also slipped, as the dollar held firm ahead of the October U.S. jobs report and a tech-led equity sell-off pushed investors into cash.
Sterling fell 0.54% against the dollar to $1.3391, while the euro slipped 0.40% to $1.1174, as of 05:40 ET (10:40 GMT).
The dollar index has been resilient despite the equity rout, which followed a Democratic “blue wave” and spread to defensive sectors. “We are seeing a rotation into cash and not out of the dollar,” said Chris Turner, global head of markets at ING.
Turner said the DXY could trade towards the middle of a 101.50-102.50 range, helped by the dollar’s liquidity advantages and near-4% one-week deposit rates.
“We still think it is too soon to call a broad-based dollar decline,” Turner said, adding that defensive positioning should show up in crosses such as a lower AUD/JPY.
Markets await October nonfarm payrolls, with ING citing a whisper number of +82,000 versus September’s soft +29,000.
Turner said a decent print would confirm the Fed’s view that the jobs market is “solid” and could support short-dated rates, which have fallen close to 50 basis points since late September.
HSBC said earlier U.S. jobless claims and Fed tightening calls had pressured the major currencies.
The Bank of England raised rates to 4% on Thursday, yet sterling still fell against the dollar, according to HSBC. HSBC said Governor Andrew Bailey welcomed lower oil prices and progress on Iran, which could reduce inflation and easing needs.
“A hawkish Bank of England can see sterling continue to outperform,” Turner said, citing the prospect of UK inflation rising towards 5% in the second quarter of next year. Sterling is up about 0.55% on the week, HSBC data showed.
The euro’s performance has been “rather unimpressive,” Turner said, noting a large U.S. tech sell-off has failed to prompt EUR/USD buying. “Barring a soft US jobs report today, expect EUR/USD to consolidate not far from 1.12,” he said.
Markets still price 18 basis points of ECB hikes in December, which ING expects to stay sticky barring a much deeper equity correction.
ECB chief economist Philip Lane speaks at 10:30 CET. EUR/GBP, near 0.83, has overshot rate differentials, though Turner sees no reason to expect an upside correction yet.
