Investing.com — Sterling edged lower on Tuesday while the euro held firm, as the dollar steadied after earlier losses and traders kept pricing in the risk of Fed tightening.
Sterling was down 0.03% at $1.3434, having earlier traded higher, while the euro gained 0.06% to $1.1231, as of 04:13 ET (09:13 GMT).
The greenback’s earlier slide on hopes of U.S.-Iran peace progress and cheaper oil looks more like a pause than a turn.
ING’s Chris Turner wrote that “the dollar should stay supported by strong US growth, high inflation and a Fed threatening to tighten before weakening next spring as inflation falls.”
HSBC’s Daily FX Focus showed the dollar index at 101.67 at the last close, down 0.12% on the week but still up 3.46% so far this year.
Turner expects the Fed to stay hawkish in the first quarter, as “decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle.”
He sees that changing in the second quarter, when “energy-driven base effects drop out of headline inflation and a return to the Fed’s 2% inflation target sees short-dated US rates move meaningfully lower.”
The pound’s gain was not driven by UK fundamentals. HSBC said that with “no key economic data released, the pound gained mostly from dollar weakness,” as falling oil prices also eased tech valuation worries.
The Bank of England raised interest rates this month. HSBC’s technical view puts GBP/USD support at $1.3304 and resistance at $1.3541, and it flags an uptrend against the dollar.
The euro rose even though eurozone investor confidence slipped, with the Sentix index falling to 2.4 from 2.7.
The European Central Bank held rates in October. ING sees a risk premium building in the euro ahead of April’s French elections. Turner said, “We therefore see EUR/USD trading offered in a 1.10-15 range over the next four to five months.” HSBC puts support at $1.1127 and resistance at $1.1296.
Turner sees “a gentle recovery in EUR/USD towards 1.18 by year-end 2027,” helped by softer U.S. rates, moderating energy prices and clarity on French politics.
An LSEG consensus cited by HSBC has EUR/USD at $1.1300 and GBP/USD at $1.3300 in the first quarter of 2027.
Two developments could shift that view. In an AI bust, Turner said the dollar would fall, with the IMF estimating a 6% drop, though a liquidity squeeze could trigger an initial rally.
