Investing.com — Sterling traded higher on Monday while the euro also gained, as dollar weakness rather than any domestic catalyst did most of the work, even as markets stayed cautious on the latest U.S.-Iran developments.
As of 08:43 ET (12:43 GMT), rose to 1.3230, up 0.20%, while gained 0.17% to 1.1403.
The dollar’s rally showed signs of fatigue into the new week, with ING’s Francesco Pesole noting markets appear uncertain about the latest U.S.-Iran re-escalation: despite the exchange of military strikes over the weekend, oil “has not seen a meaningful bounce,” with investors sticking to the optimistic stance that has held for the past month.
The tipping point for a genuine dollar bid, Pesole said, would be any disruption to Strait of Hormuz flows, “especially given the limited buffer from heavily drawn reserves.”
U.S. President Donald Trump, in a post on Truth Social, said Iran had requested a meeting with U.S. officials, which was due to take place Tuesday in Doha, after the two sides agreed to stand down following the weekend’s strikes.
ING expects June payrolls, due Thursday, to come in above 100,000 for a third consecutive month, with consumer confidence, JOLTS, ADP and ISM manufacturing data setting the tone beforehand.
A Supreme Court ruling on the firing of Fed governor Lisa Cook is a separate downside risk for the dollar this week, Pesole said, given it could reignite concerns over Fed independence. “We feel the dollar has embedded quite a lot of positives of late, and we retain a preference for fading any new rally from here,” he added.
Sterling’s gain came with little domestic news behind it, continuing a run of resilience ING attributes to political rather than economic drivers.
Labour leadership frontrunner Andy Burnham used a speech in Manchester to confirm he will set up a “No 10 North” operation in the city, calling it the “biggest rebalancing of power” the country has seen, while pledging to stick with “the discipline of our current fiscal rules.”
ING said the pound has held its gains even as Energy Secretary Ed Miliband has emerged as a frontrunner for Chancellor, suggesting markets see limited risk of fiscal slippage under him.
The broker continues to see upside risks for , targeting a move back above 0.870 this summer, and views current pricing for 25 basis points of Bank of England tightening as “too hawkish.”
For the euro, ING does not expect the ECB’s Sintra forum, running through Wednesday, to deliver any dovish surprise from President Christine Lagarde ahead of Wednesday’s June flash CPI, which the bank expects to print slightly above consensus at 3.1% headline and 2.6% core.
ING’s baseline case is for EUR/USD downside to remain limited to 1.130, with a gradual recovery toward 1.150 in July, contingent on the dollar turning and another ECB hike, which the bank expects in September.