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Sterling Gains as Traders Await Key U.S. Data to Test Dollar Strength
Summary
The British pound rose against the U.S. dollar on Monday as the greenback's recent rally paused ahead of critical U.S. jobs and inflation reports due this week. Analysts suggest the dollar may be overextended, with data poised to be the next major market driver.
The British pound edged higher against the U.S. dollar on Monday, as a recent powerful rally in the greenback stalled while traders awaited key U.S. economic data. The move suggests investors are reassessing the dollar's momentum ahead of crucial inflation and employment figures that could influence the Federal Reserve's next policy steps.
Dollar Rally Pauses
The pound sterling traded up 0.11% against the dollar to $1.3373 in early trading, according to Investing.com data. The gain was largely attributed to a pause in the dollar's ascent rather than UK-specific factors, as investors look ahead to a week packed with U.S. economic releases.
"Data could re-emerge as a primary driver for the dollar this week," said Francesco Pesole, an FX strategist at ING, in a note. Pesole added that the dollar has been looking "a bit expensive" based on the bank's short-term valuation models, suggesting risks of a pullback.
U.S. Data in Focus
Market participants are closely watching for this week's U.S. jobs and inflation reports. The key releases include the August Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, due on Wednesday, and the September nonfarm payrolls report on Friday.
AdAccording to ING, the consensus forecast for September payrolls is 90,000, though the bank sees a risk of downward revisions to August's strong figures. A significant upside surprise in the jobs data could reignite hawkish Fed bets. Markets are currently pricing in 16 basis points of tightening for the Fed's October 28 meeting, down from a peak of 19 basis points last week.
U.K. Outlook
Analysts noted that sterling's advance was primarily a reflection of the broader dollar dynamic. In the U.K., markets have priced in an aggressive path for the Bank of England, expecting more than four rate hikes over the coming year, partly driven by Brent crude oil prices trading near $100 a barrel.
However, some analysts believe these expectations are excessive. ING rates strategist Michiel Tukker described the market's positioning as "too hawkish," stating that the bank's own economists do not expect a BoE hike and see potential for rate cuts in the future as inflation is forecast to return to target by mid-2027.
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