Sterling edged lower against the dollar on Tuesday as traders kept pricing in the risk of Fed tightening. ING expects dollar support to hold into the first quarter, before a shift in the second quarter.
Sterling was down 0.03% at $1.3434, having earlier traded higher, as of 04:13 ET (09:13 GMT). The dollar steadied after earlier losses, while the euro gained 0.06% to $1.1231.
The greenback's earlier slide came on hopes of U.S.-Iran peace progress and cheaper oil. HSBC's Daily FX Focus showed the dollar index at 101.67 at the last close, down 0.12% on the week but up 3.46% so far this year.
Pound gains came from the dollar, not UK data
HSBC said that with no key economic data released, the pound gained mostly from dollar weakness, as falling oil prices also eased tech valuation worries. The Bank of England raised interest rates this month. HSBC's technical view puts GBP/USD support at $1.3304 and resistance at $1.3541, and it flags an uptrend against the dollar.
An LSEG consensus cited by HSBC has GBP/USD at $1.3300 in the first quarter of 2027.
ING sees the dollar supported until next spring
ING's Chris Turner expects the dollar to stay supported by strong US growth, high inflation and a Fed threatening to tighten before weakening next spring as inflation falls. He expects the Fed to stay hawkish in the first quarter, with decent US growth and above-3% inflation keeping money markets pricing in the threat of an extended tightening cycle.
Turner sees that changing in the second quarter, when energy-driven base effects drop out of headline inflation and a return to the Fed's 2% inflation target sees short-dated US rates move meaningfully lower.
One development could shift that view. In an AI bust, Turner said the dollar would fall, with the IMF estimating a 6% drop, though a liquidity squeeze could trigger an initial rally.
Source: Investing.com
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