Sterling today: Pound slips as euro sell-off lifts dollar

On Monday, the pound slipped as the euro approached its 52-week lows, while the dollar continued its upward trend, driven by the expectation that U.S. interest rates would remain higher for a longer period than those of other major central banks. Sterling fell 0.04% to $1.3235, while the euro declined 0.43% to $1.1204. The dollar index surged toward new year highs, according to Chris Turner, the global head of markets at ING.

He noted that the euro's decline is likely contributing to the dollar's rally. Turner suggested 102.85 as the next upside target for the dollar index, citing the more resilient outlook for the Federal Reserve's monetary policy tightening cycle compared to the European Central Bank's. Over the past month, the ECB has removed 30 basis points from its expected tightening schedule, while the Fed has removed 13 basis points.

The September jobs report, which was softer than expected, did not dampen the dollar's momentum, according to ING. The market is currently pricing in an unchanged Federal Reserve rate at the late-October meeting, with a hike expected in December. Traders are now focusing on the Institute for Supply Management's services data due out today and the Federal Open Market Committee's minutes, set to be released on Wednesday evening.

Both are expected to have a positive impact on the dollar. The pound's decline is not directly linked to UK fundamentals but rather a result of the dollar's strength and the euro's weakness. Turner pointed out that significant drops in the euro against the Swiss franc and the British pound indicate a growing risk premium in the euro.

The euro is facing pressure from concerns over French fiscal policy following last week's sell-off in French government bonds. For now, it seems investors are avoiding French debt. The focus is on the French budget submission, its progress in a divided parliament, and potential comments from the European Central Bank at a Frankfurt conference.

Turner maintains his target for the euro/dollar rate at 1.1100/1.1120, with the possibility of extending to 1.10. Turner sees a positive cyclical story only if U.S. midterm elections prompt a White House policy response, which could unsettle investors who are currently heavy in dollars.