Sterling and euro edge lower against the dollar
GBP/USD stood at 1.3634, down 0.01% on the day.
EUR/USD traded at 1.1663, also down 0.01% as of 07:00 ET.
The moves reflected a modest recovery in the U.S. dollar rather than any major shift in UK or eurozone fundamentals.
A firmer tone in U.S. Treasuries helped support the dollar ahead of this week's Jackson Hole event.
Dollar takes cues from the U.S. bond market
Francesco Pesole, FX strategist at ING, said developed currencies began the week quietly despite a busy headline environment.
According to ING, the dollar continued to take its direction from the U.S. bond market, with strength in the back-end of the Treasury curve helping the greenback recover some support.
Pesole also said trade tensions were becoming a bigger driver of currency moves, especially for the Canadian dollar as U.S.-Canada trade tensions escalated.
Washington's threat of a 50% tariff on Canadian autos from Jan. 1 was seen as part of an unresolved dispute.
Markets look ahead to U.S. data and Jackson Hole
On the data side, ING flagged Tuesday's U.S. consumer confidence release as the next major catalyst after softer readings in June and July.
Housing figures were also on traders' radar.
ING said the balance of risks for the dollar remained tilted to the downside, but its baseline view was for further consolidation into the Jackson Hole event later in the week.
No specific Federal Reserve speaker remarks were highlighted, leaving markets focused on the symposium for fresh policy guidance.
Sterling tracks dollar dynamics, not UK news
Sterling's move was not driven by domestic UK factors.
Instead, the pound largely tracked broader dollar dynamics rather than reacting to British economic data or Bank of England news.
ING noted that EUR/GBP had eased back toward the pre-U.S. Treasury buybacks area around 0.8550 to 0.8560.
That move was seen as a sign that the euro's positive premium over sterling had been scaled back.
Quiet UK calendar may limit volatility
ING said the relatively quiet UK data calendar over the coming weeks points to a low-volatility environment for EUR/GBP.
The broker still expects no Bank of England rate hikes this year.
It argued that market pricing of 32 basis points of tightening by year-end remained too hawkish.
Euro outlook and fair value
For the euro, ING said its models place short-term fair value for EUR/USD just below 1.160.
That implies a modest dollar risk premium connected to last week's U.S. Treasury buyback announcement.
Pesole said this supports the view that EUR/USD is more likely to stabilize than break significantly higher above 1.170 at this stage.
Germany's Ifo survey, due later Tuesday, was also in focus after a summer of improving business sentiment readings.
ING forward targets for key currency pairs
ING expects EUR/GBP to move toward 0.870 in the coming months.
That forecast depends on a more dovish repricing of UK front-end interest-rate expectations.
The broker also expects AUD/USD to move toward its 0.72 end-third-quarter target.
It said the pair could rise above the May highs around 0.7260 to 0.7270 by year-end if inflation trends and Reserve Bank of Australia rhetoric become more supportive.
A steadier U.S. bond market gave the dollar some support, leaving sterling and the euro under mild pressure before key U.S. confidence data and the Jackson Hole symposium.
Frequently asked questions
Why was sterling flat against the dollar?
Sterling was mostly flat because the move was driven by broader dollar strength linked to firmer U.S. Treasuries, not by any major UK-specific developments.
Why did the dollar find support?
The dollar gained support from a firmer U.S. Treasury market, especially strength in longer-dated yields, which helped the greenback recover some ground.
What are traders watching next?
Markets are watching U.S. consumer confidence data, housing figures and the Jackson Hole symposium for fresh signals on the outlook for monetary policy.
What is ING's view on the Bank of England?
ING still expects no Bank of England rate hikes this year and believes market pricing for further tightening is too hawkish.
What is ING's near-term view on EUR/USD?
ING said EUR/USD fair value is just below 1.160 and expects the pair to stabilize rather than make another strong move above 1.170 for now.
Navamya Acharya
The Pips School editorial team writes independent educational material on forex markets, broker selection and risk management.
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