Investing.com — Sterling traded higher on Monday while the euro also gained, as the dollar gave back some of Friday’s tech-selloff and payrolls-driven rally.
Sterling rose 0.43% against the dollar to $1.1188, while the euro gained 0.03% to $1.1988, as of 04:35 ET (09:35 GMT).
The greenback had strengthened after last week’s tech-led equity rout and a stronger-than-expected U.S. jobs report. “The dollar’s appreciation was probably driven, albeit with some delay, by the extent of the contagion into defensive stocks and global markets,” said Francesco Pesole, FX strategist at ING.
Pesole said the rally now needs fresh risk aversion to continue. “We think the dollar rally requires the risk-off mood to persist this week. Otherwise, there is some moderate correction risk, as Friday’s move looked a bit too stretched relative to short-term market drivers,” he said.
U.S. payrolls rose 165,000 on Friday, beating expectations. Markets price 19 basis points of a Federal Reserve hike in December, a hawkish-leaning stance.
Pesole expects October consumer price data on Tuesday to show 0.3% month-on-month growth for both headline and core, in line with consensus. “That should help cement expectations for a December Fed hike,” he said.
Last week the Bank of England raised rates, and Governor Andrew Bailey speaks later today.
Pesole said the lack of dovish dissenters reinforced ING’s view of another hike in February, though consensus will be harder to build, as some members consider “a one-and-done approach.”
HSBC noted that Monetary Policy Committee member Huw Pill suggested rates could fall if growth slows next year. “Bailey himself has signalled caution in hiking more than once again,” Pesole said.
Pesole sees sterling as expensive against the euro, with EUR/GBP, at about 0.834, trading 2.6-2.8% below ING’s short-term fair value. HSBC puts GBP/USD support at 1.3243 and resistance at 1.3480.
Euro-area retail sales fell more than expected on Friday. ECB chief economist Philip Lane said policymakers want more data before December’s policy decision, HSBC reported. Eurogroup ministers meet today to discuss the ECB presidency candidacies of Spain’s Pablo Hernandez de Cos, seen as a dove, and the Netherlands’ Klaas Knot, seen as a hawk.
