The pound sterling and euro strengthened on Tuesday, while the dollar consolidated amid low trading activity and risks in the energy market.
On Tuesday the pound sterling traded higher against the US dollar, and the euro also showed slight growth. The dollar meanwhile consolidated amid low trading activity and persistent risks in the energy market, as well as uncertainty around the French budget.
The pound-dollar pair rose 0.35 percent and reached 1.3352. The euro-dollar pair added 0.19 percent and climbed to 1.1233. The dollar weakened against commodity currencies but strengthened against the yen and the Swiss franc.
ING analyst Chris Turner noted that the week began calmly, although the key themes and threats remained unchanged. Energy prices remain at highs, which prevents any noticeable correction in bond yields. Concerns persist that the US and Israel may strike Iran again before the US midterm elections.
Turner pointed to Coreweave bonds maturing in 2032, which trade at 80 cents per dollar of par. This poses a threat to dollar stability. ING expects news on energy and France to dominate, while the dollar index could find support at 101.50–101.60.
Short-term US rates rose slightly. Tesla, Meta and IBM report on Wednesday. Weak US housing data are unlikely to pressure the dollar, and weekly ADP employment data usually do not move the market significantly.
Pound gains are more linked to dollar weakness than to UK domestic factors. Unemployment in the country fell to 4.7 percent over the three months to August, better than the 4.9 percent forecast. However, vacancies dropped 2.9 percent to 691 thousand, and wage growth slowed to 3.7 percent.
The euro received modest support despite widening spreads on French bonds. French deputies are voting on the revenue side of the 2027 budget, and Moody’s will review France’s rating on Friday. The agency may cut it to single A.
French cities remained calm overnight thanks to the curfew imposed after the riots. Prime Minister Sébastien Lecornu stated that restrictions could be extended if necessary. Justice Minister Gérald Darmanin reported that 123 people are awaiting trial and around 2,500 remain in custody.
ING believes the consolidation period looks necessary after the September decline. Arguments for EUR/USD recovery remain weak, and moves toward 1.1180 or 1.1270 appear equally likely.