Sterling traded slightly higher on Tuesday as the dollar softened. Investors are looking to Thursday's Bank of England meeting, where a 25 basis point hike to 4% is widely expected. ING flags hawkish BoE guidance as the key upside risk for the pound.
Sterling traded slightly higher on Tuesday as the dollar softened on lower oil prices and positioning ahead of the U.S. midterm elections. Investors are watching Thursday's Bank of England meeting, where a 25 basis point rate hike to 4% is widely expected.
Pound holds at $1.3441 as the dollar eases
Sterling rose 0.0% against the dollar to $1.3441, as of 05:09 ET (10:09 GMT). The euro gained 0.03% to $1.1187.
According to HSBC, sterling "nudged up against USD yesterday as a softer dollar offered support" ahead of the Bank of England decision. The LSEG consensus cited by HSBC sees GBP/USD at 1.33 and 1.34, with EUR/USD at 1.14 in Q4 and 1.15 in Q1 2027.
ING expects a 7-2 vote on Thursday
ING's James Smith and Michiel Tukker forecast a 7-2 vote and noted that more than 100bp of hikes are already priced in. They said sterling is helped by the view that high energy prices leave the Bank of England no alternative but to hike on Thursday.
Next, they flagged hawkish BoE guidance as the key upside risk for sterling, such as a signal that some further tightening in monetary policy is likely to be appropriate over the coming months.
ING does not expect structural FX shifts from the midterms
Markets are bracing for a Democratic win in the House, with the Senate a closer call. ING said prediction markets give Democrats a 74% chance of taking the Senate.
ING strategist Francesco Pesole said the bank does not expect the midterm results to cause structural shifts in FX. He added that the greenback continues to respond predominantly to the Fed story.
Traders also await U.S. JOLTS job openings data on Tuesday, Wednesday's Treasury refunding announcement and Friday's payrolls.
Source: Investing.com
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