Investing.com — Sterling and the euro extended modest gains on Tuesday as currency markets entered a consolidation phase, with the dollar pausing after Friday’s jobs-driven surge while a stabilisation in tech stocks and stronger-than-expected Chinese trade data offered some relief to risk sentiment.
As of 08:20 ET (12:20 GMT), traded higher by 0.44% at 1.3401, while rose 0.29% to 1.1572, with both pairs clawing back a portion of Friday’s sharp losses even as the broader dollar bid remained intact.
The session’s calmer tone reflects a lack of fresh catalysts rather than any genuine shift in sentiment.
With both the Federal Reserve and ECB now in blackout periods ahead of their respective meetings next week, there is little scope for policymakers to reshape rate expectations in either direction.
Markets remain positioned for firm US price data, with Wednesday’s May CPI and Thursday’s PPI the next key tests.
ING notes the market is already leaning toward a less dovish FOMC outcome, leaving the supported on dips, with the 99.80 area likely to provide a near-term floor before another push at the upside later in the week.
Adding a secondary support to the dollar, Fed custody data shows a further $71 billion decline in foreign official holdings of US Treasuries since the start of May, a signal of likely FX intervention across Asia that puts ongoing pressure on the Treasury market and reinforces safe-haven dollar demand.
For sterling, the partial recovery to 1.3404 has come largely on dollar fatigue rather than any domestic catalyst.
The Bank of England remains expected to sit on its hands this summer, with markets pricing only around 21bp at the September meeting.
Sterling’s pro-risk character means it benefits modestly from Tuesday’s equity stabilisation, Korean chipmakers, which led Friday’s sell-off, bounced back sharply overnight, but that same sensitivity leaves it exposed should risk appetite deteriorate again.
ING’s target of 1.3300 this week remains intact, with 1.3200 in view if dollar momentum resumes.
For EUR/USD, the pair is attempting to stabilise after Friday’s heavy selling, with 1.1500 now a critical support level and the top of the near-term range likely capped around 1.1555/60 while the bullish dollar theme holds.
German industrial production for April came in marginally better than expected, though ING’s eurozone macro team caution that activity could deteriorate in coming months once precautionary inventory building runs its course.
Thursday’s ECB meeting remains the key event risk for the euro, with a hawkish tone and signal of a further move in September potentially offering some near-term support, but the pair will need to navigate Wednesday’s US CPI first before that story can take hold.