Sterling edged higher against the dollar on Monday as the greenback stayed soft ahead of Friday's U.S. inflation report, while the euro posted a smaller gain in holiday-thinned trading. UK Chancellor John Healey used his first major speech to defend the government's economic record ahead of the October 28 budget, while ING flagged Thursday's ECB meeting as the next test for the euro.
GBP/USD rose 0.14% to 1.3535. EUR/USD added 0.07% to 1.1622 as of 05:10 ET (09:10 GMT), as the dollar failed to capitalize on an otherwise supportive backdrop during a light session tied to the U.S. Labor Day holiday.
Dollar lags despite supportive backdrop
According to Investing.com, ING's Chris Turner said: "The dollar should really be doing better than it is." He pointed to high energy prices and an above-consensus August non-farm payrolls print as reasons the currency should trade stronger. Instead, he said the shortfall probably owes to a still-constructive investment environment in which global equity markets, including emerging markets, keep performing well, adding that the inverse link between global equities and the dollar seems to be the strongest it has been, well above the dollar's relationship with oil prices.
Markets are focused on Friday's August U.S. CPI report, where ING expects 0.4% headline and 0.2% core month-on-month readings. That, the bank says, would be enough to nudge the Fed toward a 25 basis-point cut at its September 16 meeting. That move is currently priced at just 58% probability. The Treasury market is also in view this week, with $119 billion of three-, 10- and 30-year bond auctions alongside the start of a buy-back operation in longer-dated Treasuries. Turner said he prefers to back higher energy prices and an under-priced Fed as near-term dollar supports, forecasting the DXY dollar index drifting in a 99.00-99.50 range.
Healey pitches recovery ahead of October budget
Chancellor John Healey used his first major speech as chancellor, delivered in Coventry on Monday, to tell reporters he had relayed an optimistic account of Britain to G20 counterparts, citing six interest rate cuts since the 2024 election and a stock market hitting record highs. He also struck a cautious note on the public finances ahead of the October 28 budget, saying fiscal discipline was his first priority and warning that debt interest, if it were a government department, would be the second biggest in Whitehall after health. He attributed elevated borrowing costs to a legacy of political turmoil, blaming austerity under David Cameron, the hard Brexit pushed through under Boris Johnson, and what he called the Truss penalty following the 2022 mini-budget.
Turner said the speech was unlikely to move the pair materially, since Healey would struggle to unveil meaningful pro-growth measures, and expects EUR/GBP to stay contained in a 0.8580-0.8610 range.
Euro awaits Thursday's ECB decision
For the euro, attention turns to Thursday's ECB meeting, where ING sees some downside risks to the single currency, alongside confirmation of eurozone Q2 growth at 0.4% quarter-on-quarter and a Sentix confidence reading. Sunday's Saxony-Anhalt election results, showing declining support for Chancellor Merz's CDU, add a mild headwind if replicated elsewhere. ING expects EUR/USD to trade a tight 1.1580-1.1640 range Monday, with its bias to the downside.
A hawkish ECB surprise or a weaker U.S. inflation print could dislodge ING's near-term dollar-supportive view, while Treasury market weakness could instead cap the dollar's advance later this week.
Source: Investing.com
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