Pound Sterling Weakens as Dollar Gains Strength Ahead of Fed Policy Meeting

The British pound traded lower against a firm U.S. dollar on Monday, as market participants positioned themselves for a pivotal week featuring a key Federal Reserve policy meeting. A combination of elevated energy prices and geopolitical tensions in the Middle East continued to bolster safe-haven demand for the greenback.

As of 05:35 ET (09:35 GMT), sterling was down 0.22% against the dollar at $1.3348, according to data from Investing.com. In contrast, the euro edged higher by 0.09% to $1.1213, showing some resilience.

Dollar Supported by Risk-Off Sentiment

The dollar's strength is being driven by multiple factors ahead of the Fed's decision on Wednesday. Analysts pointed to persistent geopolitical risks and high energy costs as primary supports for the U.S. currency.

"The balance of risks suggests that the dollar can probably hold onto its gains," said Chris Turner, global head of markets at ING, in a note. He cited the ongoing tensions in the Middle East and sustained high energy prices as key factors supporting the dollar's current valuation. ING expects the DXY dollar index to hold a 101.45-101.85 range.

Fed Expected to Hold Rates Steady

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Markets and economists broadly expect the Federal Reserve to keep interest rates on hold at its upcoming meeting. Economists at ING described it as "the perfect meeting to keep rates on hold," citing recent neutral commentary from key officials including Vice Chairs Philip Jefferson and Michelle Bowman.

Despite the expected pause, ING's analysis does not rule out future tightening, forecasting a potential 25 basis point rate hike in December. Investors will also be closely watching major tech earnings from Alphabet and Microsoft this week for further signals on the health of the U.S. economy.

Euro Shows Resilience

The euro found some support following surprisingly resilient flash October PMI data for the eurozone, which suggested a stable business outlook. Moody's decision on Friday to maintain France's Aa3 rating also provided a degree of stability for the common currency.

However, analysts remain cautious. Turner noted that the $1.1180 support level for the EUR/USD pair appears "vulnerable this week." Market focus in the region will turn to the release of Germany's Ifo business sentiment data later today.