Sterling Edges Higher as Dollar Weakens Ahead of Key US Inflation Data

The British pound and euro gained modestly against the U.S. dollar on Monday in trading thinned by a U.S. public holiday. The dollar remained under pressure as investors looked ahead to key inflation data later in the week that could influence the Federal Reserve's decision on interest rates.

Dollar Pressured Ahead of Inflation Data

As of 5:10 AM ET, the GBP/USD pair was up 0.14% at $1.3535, while the EUR/USD pair rose 0.07% to $1.1622, according to Investing.com data. The dollar's weakness comes despite factors that would typically offer support, such as high energy prices and a stronger-than-expected August nonfarm payrolls report.

Analysts at ING suggest a "positive overall investment environment" and strong performance in global equity markets are currently weighing on the greenback. In a note, ING's Global Head of Markets, Chris Turner, said the negative correlation between global stocks and the dollar "is the most dominant one right now."

Market focus is now squarely on the U.S. Consumer Price Index (CPI) report for August, due on Friday. ING analysts forecast the data will be sufficient to prompt a 25-basis-point rate cut from the Fed at its September 16 meeting, an outcome for which markets are currently pricing in only a 58% probability.

UK Chancellor Touts Optimism Amid Fiscal Warnings

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In the UK, Chancellor John Healey delivered his first major speech, stating the British economy is "bottoming out." Healey said he conveyed an "optimistic" outlook to his G20 counterparts, citing six interest rate cuts since the 2024 election and stock markets at "all-time highs."

However, he also issued a stern warning on fiscal discipline ahead of the October 28 budget, calling it his "number one priority." He highlighted the significant cost of debt interest payments, blaming high borrowing costs on past "political chaos," including austerity measures, a "hard Brexit," and the 2022 "mini-budget."

ING's Turner suggested the speech was unlikely to have a material impact on sterling, forecasting the EUR/GBP pair to trade within a tight range of 0.8580 to 0.8610.

Euro Awaits ECB Meeting

For the euro, investor attention is turning to the European Central Bank's policy meeting on Thursday. ING analysts noted in their report that they see "some downside risk" for the single currency from the event. Traders will also monitor the final reading for second-quarter GDP and the Sentix investor confidence index this week.