Sterling slipped on Monday and the euro softened marginally as the U.S. dollar proved unexpectedly firm, despite confirmation that U.S. and Japanese authorities had undertaken a rare joint intervention aimed at supporting the yen and amid a softer oil backdrop.
By 03:55 ET (07:55 GMT), GBP/USD had fallen about 0.15% to 1.3462, while EUR/USD was down roughly 0.03% at 1.1526.
Market participants had expected the dollar to lose ground after Washington and Tokyo disclosed coordinated selling of dollars to bolster the yen - with Tokyo estimated to have sold between $70 billion and $80 billion over the last three days. Yet the greenback held up, surprising some traders.
"In theory, the dollar should be broadly weaker today," said Chris Turner, global head of markets at ING, referring to the intervention and lower oil prices following reports that U.S. presidential comments favoured negotiation over military escalation with Iran. "The case for a sustained sell-off in the dollar has yet to be made," he added.
The dollar’s durability stems in part from persistent expectations that the Federal Reserve may still tighten policy further. Market pricing briefly trimmed monetary tightening odds for September to under 10 basis points following last week’s Fed Chair press conference, before more hawkish repricing lifted that back toward 16-17 basis points.
Longer-term U.S. interest rates also remain elevated: U.S. 30-year Treasury yields are trading above 5.20% and the 30-year mortgage rate has climbed to about 6.75%. Analysts said the Fed’s near-term pathway will hinge heavily on this week’s U.S. labour-market releases - including JOLTS job openings on Tuesday, ADP on Wednesday and Friday’s non-farm payrolls, where consensus is clustered around gains of 75,000-80,000.
Turner noted that the consensus payroll figure is "probably not quite weak enough to rule out a Fed hike." He added that July’s ISM manufacturing report, due today, will be the first significant data release to set the tone for the week.
The drop in sterling was not tied to any material UK-specific economic or political news on Monday. Instead, the pound largely followed dollar-centric dynamics. ING’s analysis points to DXY support near 99.35/40 and the prospect of a rebound above 100 this week - a development that would exert further, albeit modest, downward pressure on cable (GBP/USD) if it occurs, though ING cautioned a sharp move is unlikely without a data surprise.
EUR/USD’s relative underperformance contrasted with what ING described as a generally favourable backdrop for the euro - including solid eurozone hard data last week, lower oil and heavy dollar selling from Japan. Turner flagged possible U.S. Treasury activity in EUR/JPY as one factor, suggesting Washington might have sold that cross "to avoid having to explain to the US public why it was selling the dollar." He pointed to roughly $13 billion in euro-denominated FX reserves held by the Exchange Stabilisation Fund, calling that amount "barely a drop in the ocean" relative to global flows.
ING sets a strategic pivot for EUR/USD at 1.1615/20 on the upside and 1.15 on the downside, and views the Fed’s September decision as the decisive factor for which level yields first. Their base case is that the DXY will recover above 100 this week if non-farm payrolls come in near the consensus. By contrast, a payroll print below about 50,000 would be the threshold needed to materially change the prevailing dollar-bearish view.
Today’s economic calendar and the upcoming U.S. labour data will be watched closely by currency and fixed-income markets, with implications for borrowing costs, mortgage rates and cross-asset positioning.