GBP/USD and EUR/USD slipped modestly as higher oil prices and bets on a more hawkish Federal Reserve supported the dollar. ING’s strategist outlines scenarios tied to Fed timing, oil moves and ECB pricing.
Higher oil prices and renewed Fed-hike pricing are the main forces propping up the dollar.
ING expects one final Fed hike this year (more likely December than October) and sees downside risk for EUR/USD if oil rises toward $110/bbl.
German regional election results weighed on the euro but did not override rate differentials and energy price drivers.
Sterling traded slightly lower on Monday while the euro also eased. GBP/USD was quoted at $1.3385, off about 0.07%, and EUR/USD at $1.1479, down roughly 0.06% as of 05:22 ET (09:22 GMT). Oil, rate expectations and political headlines set the tone for the session.
Elevated crude prices and renewed belief in further Fed tightening underpin dollar strength. ING's Francesco Pesole said the dollar "remains on solid footing" after a reported Bank of Japan rate check removed some recent pressure on the greenback. ING highlights the market's continued scope to price a more hawkish Fed even after September's FOMC.
ING now expects a single final Fed hike this year, favoring December over October. Markets currently price about 13 basis points of tightening for next month. Pesole noted that if markets assign at least a two-thirds probability to a hike by decision day, the Fed may feel compelled to act even without full conviction. That dynamic supports dollar upside if market odds move higher.
With a light macro calendar, oil is the principal focus for traders. Brent was trading around $102.61/bbl in the session snapshot provided. ING's scenario work links EUR/USD downside to oil: a rebound in Brent toward $110/bbl would make a retest of June lows for the euro more realistic. ING's baseline, however, is for oil to fall sharply in Q4, which would ease pressure on the euro and energy-linked currencies.
Europe: ECB pricing and German politics
ING expects the ECB to hike in December, noting that ECB speakers continue to hint at hawkishness. Markets price 33-37 basis points of ECB tightening by year-end and roughly 80-90 basis points by next July. That potential tightening narrows the policy gap between the U.S. and euro area, limiting how far EUR/USD can fall absent big oil moves.
German regional elections added a political overlay. The far-right AfD won Mecklenburg-Vorpommern, where the CDU failed to cross the 5% threshold, and the Left Party won in Berlin. ING describes those results as adding "some clouds to the euro," but not enough to override rate differentials and oil as primary drivers.
Geopolitical and trade headlines to watch
Sterling and the euro were slightly lower at the snapshot taken, with the dollar supported by persistent oil prices and expectations that the Fed may still tighten once more this year. ING's view centers on a final Fed hike likely in December, oil-driven risk for the euro, and ECB pricing that partially offsets dollar gains.
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