Story
Pound Steady as Dollar Ignores Weak Jobs Data Ahead of Fed Minutes
Summary
The British pound held its ground against a resilient U.S. dollar, as currency traders looked past a soft U.S. jobs report and focused on the anticipated hawkish tone of this week's Federal Reserve meeting minutes.
The British pound traded in a narrow range against the U.S. dollar on Monday, as the greenback showed resilience despite last week's soft jobs report, with investors instead focusing on upcoming Federal Reserve meeting minutes.
As of 08:25 ET, the GBP/USD currency pair was nearly flat, dipping just 0.03% to 1.3348, while the euro fell more sharply against the dollar, with EUR/USD down 0.17% to 1.1417.
Dollar Finds Footing on Hawkish Fed Outlook
The dollar's stability comes even after June's non-farm payrolls data failed to inflict lasting damage on the currency. Market attention has shifted to the Federal Open Market Committee (FOMC) minutes due on Wednesday, which are widely anticipated to carry a hawkish tone.
Money markets are currently pricing in approximately 31 basis points of Fed interest rate hikes this year. While this is down from a peak of 43 basis points late last month, it still signals a clear bias toward monetary 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. Turner added that the Fed "is committed to restoring price stability," and that some members could view the central bank's next move as a rate hike.
AdUK Political Landscape Looms for Sterling
Sterling's current price action is not being driven by domestic UK fundamentals, according to the source material. The currency remains near a two-week high, partly supported by investors closing out bearish bets, a process known as the "unwinding of stale short positions."
However, analysts see potential headwinds from the UK's political landscape. Andy Burnham is expected to become Prime Minister on July 20, with Ed Miliband seen as the frontrunner for Chancellor. ING noted that Miliband's policy stance and severe fiscal constraints could lead to tax increases.
This political backdrop, combined with ING's expectation that the Bank of England will refrain from raising interest rates this year, leaves sterling "vulnerable to giving back recent gains once the political transition crystallises," the firm's analysis concluded.