Investing.com — Sterling traded lower on Tuesday while the euro also eased against the dollar, as rising energy prices and higher long-dated Treasury yields lent the greenback broad support and kept traders wary of chasing the dollar lower.
fell to 1.3529, down 0.11% on the day, while slipped to 1.1573, down 0.06%, as of 04:33 ET (08:33 GMT).
“The two factors providing near-term support are higher energy prices and rising ,” said Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING.
“Both of these, should they extend, could put a September hike from the Federal Reserve back on the agenda.” Turner noted the dollar index rebounded from range lows of 99.40 a day earlier, adding “the dollar is not quite ready to make a sustained break lower just yet.”
He flagged that Washington’s apparent reluctance to extend the 60-day ceasefire with Iran has pushed oil and gas prices higher again, a dynamic he called “a dollar positive – both through US energy independence and the Fed’s reaction function.” ING expects DXY to hold a 99.40-100 range.
On rates, Turner pointed to record US investment-grade issuance, $145 billion in August, as the more compelling driver of the long-end sell-off than fiscal concerns, since 30-year swap spreads have not widened.
He noted pricing for a September Fed hike has risen to 9bp from 7bp this week. Traders are watching Tuesday’s July PPI, weekly ADP jobs data, industrial production and housing figures, with PPI seen as the most market-moving release; FOMC minutes are due Wednesday night.
ING’s UK economist James Smith described the latest jobs data as unremarkable, “Nothing particularly earth-shattering in the latest UK jobs figures.” Payrolled employment edged down, masking divergence between still-hiring government roles, a worsening decline in consumer services, and a flatlining private sector.
The unemployment uptick, Smith said, should be taken with a “pinch of salt” given known sampling issues in the Labour Force Survey. Private-sector pay growth remains below 3%.
“The basic story is the same – the jobs market remains cool, and wage pressures are fairly minimal,” he said, adding it “suggests little impetus for the Bank of England to hike rates this year.”
firmed modestly on the release, and ING sees it biased toward 0.8570/80, with July’s UK CPI due Wednesday next in focus.
On the euro, Turner said EUR/USD’s rally stalled just above 1.16 on Tuesday and traders will be cautious pushing higher given elevated prices and Wednesday’s FOMC minutes. He expects a 1.1520-1.1580 range Tuesday.
Higher energy costs are firming expectations of a 25bp ECB hike in September, with another 25bp seen by early next year. ING’s house forecast is 1.17 by end-September and 1.18 by year-end, contingent on the Fed holding off from hiking.