The pound sterling and euro strengthened against the dollar after oil prices fell 2-3% on news of Donald Trump's intention to exhaust diplomatic options in relations with Iran.
On Monday, the pound sterling traded above the $1,3440 mark, adding 0.39% to the dollar. The euro rose 0.65%, reaching $1,1233. The dollar weakened amid a 2-3% drop in oil prices. The reason was a report that US President Donald Trump is ready to give diplomacy a chance in relations with Iran.
The pound's rise is mainly linked to the dollar's weakening, not to an improvement in the UK economy. The Bank of England raised the rate by 25 basis points to 4% on Thursday, and this decision is already priced in by the market. ING expects the vote to pass in a 7 to 2 ratio.
ING analyst Chris Turner noted that the dollar index is likely to remain around the 102.00 level. He pointed to US economic growth of 3.4% year-on-year in the third quarter and persistent inflation. The Fed, he said, is preparing for further policy tightening.
This week will see ISM business activity data and the US jobs report for October. Turner believes these figures are unlikely to significantly affect the Fed's rhetoric.
An additional risk for the euro was the downgrade of France's rating outlook by Fitch. The EUR/USD pair is currently in the 1.1200-1.1250 zone, where, according to Turner, more sellers may appear. HSBC cites support at 1.1084 and resistance at 1.1250.
HSBC forecasts for the coming quarters assume GBP/USD rising to 1.33-1.34 and EUR/USD to 1.14-1.15. The main risks for the dollar remain a possible sell-off in tech stocks and the results of the US midterm elections.