Sterling Holds Steady as Dollar Shrugs Off Weak Jobs Data Ahead of Fed Minutes

The British pound held steady against the U.S. dollar on Monday, while the euro fell, as the greenback showed resilience despite last week's soft employment data. Investors are positioning for the release of Federal Open Market Committee (FOMC) minutes on Wednesday, which are widely expected to carry a hawkish tone.

As of early Monday trading, the GBP/USD pair was nearly unchanged, dipping just 0.03% to $1.3348. In contrast, the EUR/USD fell 0.17% to $1.1417, highlighting broader dollar strength.

Dollar Finds Support in Fed Outlook

The U.S. dollar's firmness comes as markets look past a weaker-than-expected June non-farm payrolls report. Instead, the focus has shifted to the Federal Reserve's monetary policy path. Money markets are currently pricing in approximately 31 basis points of Fed tightening for the remainder of the year, according to Investing.com.

Analysts note that the narrative for a weaker dollar is currently lacking. "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 some (or many) members could see the Fed’s next move as a rate hike." The upcoming June ISM services data will also be monitored for inflation signals.

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Sterling's Domestic Risks Remain Latent

Sterling's current stability is not being driven by domestic UK fundamentals. The pound is trading near a two-week high, a move supported by the unwinding of established short positions against the currency, according to market analysis.

However, analysts at ING highlighted that latent political risks could weigh on the pound going forward. An expected government transition on July 20 brings potential fiscal policy changes into focus. ING noted that the new government faces "severe fiscal constraints," which could make tax increases a likely policy tool. This backdrop, combined with ING's expectation that the Bank of England will not raise interest rates this year, could leave sterling vulnerable to giving back its recent gains.