Pound Holds Steady as Hawkish Fed Outlook Bolsters US Dollar

The British pound held steady against the U.S. dollar on Monday, as the greenback shrugged off a recent weak jobs report, drawing support from investor expectations for a hawkish Federal Reserve policy outlook.

As of 08:25 ET (12:25 GMT), the GBP/USD currency pair was down a marginal 0.03% to trade at 1.3348. Meanwhile, the euro fell more sharply, with the EUR/USD pair declining 0.17% to 1.1417, highlighting broader dollar strength.

Dollar Shrugs Off Weak Jobs Data

The dollar's resilience comes even after last week's June non-farm payrolls report failed to meet expectations. Instead, currency markets are looking ahead to Wednesday's release of the Federal Open Market Committee (FOMC) meeting minutes, which are widely anticipated to strike a hawkish tone.

Money markets are pricing in approximately 31 basis points of Federal Reserve interest rate hikes this year, according to Investing.com. While this is down from a peak of 43 basis points last month, it still reflects a bias toward policy tightening. "Short dollar positions need to be backed up by a strong story, which is simply not there at the moment," said Chris Turner, global head of markets at ING, in a note cited by the source.

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Sterling Faces Latent Political Risks

The pound's recent stability near a two-week high is attributed more to the unwinding of stale short positions than to strong domestic fundamentals. Analysts caution that the UK's domestic political situation presents a potential vulnerability for the currency going forward.

With Andy Burnham expected to take office as Prime Minister on July 20, attention is turning to his cabinet. ING analysts noted that Ed Miliband, the frontrunner for Chancellor, "faces severe fiscal constraints," which could make tax increases the likely policy tool. This backdrop, combined with ING's view that the Bank of England will not raise rates this year, could see sterling give back recent gains once the political transition is complete.