Investing.com — Sterling traded lower on Monday, dipping below $1.35, while the euro also fell against the dollar, as rising oil prices and expectations of a hawkish Federal Reserve rate hike lifted the greenback broadly.
was last at 1.3482, down 0.33%, while fell 0.55% to 1.1535, breaking below the 1.1600 level it held last week, as of 04:25 ET (08:25 GMT).
was up over 3% on the session after Saudi Arabia shut its East-West pipeline following drone attacks from Iraq.
“We continue to favour a moderately stronger dollar from here,” said Francesco Pesole, FX Strategist at ING.
“A message of monetary policy rigour by the Fed on Wednesday can help slowly rebuild the positive USD-Treasury yield correlation, allowing the greenback to function more efficiently as a safe haven.”
Pesole added that a return to the 99.50-100 range in the dollar index “remains a tangible possibility… and fully in line with current drivers,” citing Gulf supply risks alongside fresh AI-related pressure on equities.
Markets are pricing a near-unanimous 22bp Fed hike on Wednesday, with hotter-than-expected U.S. CPI last week having “all but sealed” the move, Pesole said.
He flagged that the Fed “may retain a hawkish tone given the bond market’s demand for policy credibility and recent rise in energy prices.”
Traders are also watching for any signs the White House pursues fiscal stimulus ahead of the midterms, which ING said “could trigger a rise in the USD risk premium.”
Monday’s move in sterling was not driven by UK-specific fundamentals; strategists tied the decline squarely to broad dollar strength.
GBP/USD has fallen 0.27% over the past day and 0.38% over the past week, tracking the euro’s losses rather than any domestic catalyst, with no UK data or Bank of England commentary cited as a driver.
For the euro, attention turns to Germany’s ZEW survey and comments from ECB President Christine Lagarde in Vienna, alongside Isabel Schnabel and Piero Cipollone earlier in the day.
“Last week’s hawkish European Central Bank messaging may slow the pace of the decline,” Pesole said, adding that ING’s “near-term target remains 1.1500.”
He said the bank’s macro team “remains sceptical that the ECB will deliver further hikes,” though Gulf-driven risks “may keep policymakers leaning hawkish for the time being.”
ING said the dollar could extend gains toward DXY 99.50-100.0 and push EUR/USD toward 1.1500, with GBP/USD vulnerable to further softness, contingent on a hawkish Fed hike Wednesday, continued oil-driven Gulf supply disruption, and no material de-escalation in Middle East shipping routes through the Strait of Hormuz.