Investing.com — Sterling traded higher on Monday while the euro slipped, as traders weighed whether the dollar’s recent rally can last ahead of a week of U.S. jobs and inflation data.
GBP/USD rose 0.11% to 1.3373, while EUR/USD gained 0.10% to 1.1487, as of 05:30 ET (09:30 GMT).
“Data could re-emerge as a primary driver for the dollar this week,” ING FX strategist Francesco Pesole said.
“The dollar has been looking a bit expensive across G10 according to our short-term valuation models.” Dollar bulls “may be content with DXY holding around 101.0 for now, but risks are of a pullback to 100.50,” he said.
Markets price 16 basis points of tightening for the Oct. 28 Fed meeting, versus a peak of 19bp last week, after “a good dose of hawkish Fedspeak,” Pesole said.
ING expects consensus 90,000 September payrolls Friday but sees “risks of downward revisions to August’s blowout 162k print.” A big beat could lift pricing above 20bp. August PCE is due Wednesday; August CPI on Oct. 14 is “the most important release,” Pesole said.
The pound’s gain looks dollar-driven rather than UK-driven. Markets price more than four Bank of England hikes over the coming year with Brent near $100, which would take SONIA to about 4.75%, ING rates strategist Michiel Tukker said, but “we think markets have turned too hawkish.”
ING’s economist does not expect a hike, and Tukker sees scope for cuts toward 3.25% from 3.75% as inflation converges to target by mid-2027. “For every $10 increase in oil prices, the 2yr gilt yield rises by around 15bp,” he said.
Separately, the Ministry of Housing, Communities and Local Government said its “Your First Home” scheme, to be confirmed at next month’s Budget, will back 2.5% deposits with 20% equity loans for new-build buyers in England, citing “challenging headwinds” for housing. Nothing links it to today’s move.
“Our models still suggest EUR/USD should be trading above 1.140,” Pesole said, calling the recent decline “a bit overdone.” ING expects euro zone core inflation, due Friday, to edge up to 2.5%, “confirming there’s no sign of second-round effects,” but doubts it will turn the ECB dovish. ECB President Christine Lagarde speaks today. French bond spreads are a downside risk.
ING targets EUR/USD just above 1.140 and DXY at 100.50, with no GBP/USD target. “Barring another significant upside surprise in payrolls, we don’t see the dollar keeping up with its recent strong momentum,” Pesole said.
A hot jobs print, an oil spike or French bond stress would undermine that view. Tukker warned “any further escalation in the Middle East would immediately push interest rates higher again.”
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