On Monday, the pound sterling was declining, while the euro rose slightly amid investors preparing for central bank decisions and dollar support from energy carriers and the situation in the Middle East.
On Monday, the British pound sterling continued to decline against the US dollar. Investors were preparing for an active week with meetings of several central banks, including the Federal Reserve's decision on Wednesday. The euro, meanwhile, showed a slight increase.
By 12:35 Moscow time, the pound fell 0.22 percent and traded at 1.3348 dollars. The euro added 0.09 percent and was at 1.1213 dollars. ING analysts note that the balance of risks is currently favorable for maintaining dollar positions.
Rising energy prices and the arrival of the third US Navy carrier group in the Persian Gulf have heightened tensions in the Middle East. This makes further escalation more likely. ING Global Head of Market Analysis Chris Turner expects the dollar index to remain in the 101.45–101.85 range. He sees no grounds for a drop below 101.25 without a sharp decline in US technology stocks.
Markets and economists mostly expect the Fed to leave rates unchanged. Federal Reserve Vice Chairs Philip Jefferson and Michelle Bowman, as well as Governor Chris Waller, have taken a neutral stance and see no need to rush. Fed Chair Kevin Warsh also gave no hints of a rate hike at IMF meetings.
Some Fed members who voted for a rate hike in July may again express a dissenting opinion. ING forecasts a possible 25 basis point rate hike in December. This week will also see technology company earnings reports and consumer price index data.
The euro was supported by solid business sentiment in the eurozone. Preliminary October PMI indices were stable, although France was an exception. Moody’s affirmed France’s rating at Aa3, which led to a narrowing of spreads between French and German bonds. However, noticeable progress on the French budget is needed to ease pressure on the euro.
The ECB will hold its meeting this week. Today, Germany will publish Ifo business climate index data. According to Turner, the 1.1250–1.1270 level will limit euro-dollar pair gains in the near term, while support at 1.1180 could prove vulnerable.