Sterling at two-week high, euro rebounds from one-year lows

GBP/USD rose to $1.3310, up 0.25%, while EUR/USD jumped to $1.1402, up 0.21%

Sterling traded at a two-week high on Thursday while the euro rebounded from one-year lows.

GBP/USD rose to $1.3310, up 0.25% as of 12:04 GMT while EUR/USD jumped to $1.1402, up 0.21%.

The dollar can remain relatively supported barring a big miss and large downward revisions, with the DXY sitting mid-range and capable of testing 101.50/80 on a 100k+ print, said Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING.

The sterling move is not being driven by UK fundamentals, ING said. Bank of England Governor Andrew Bailey struck a dovish tone at Sintra, flagging a softening UK economy but ruling out imminent rate cuts.

Turner attributed the rally instead to short-covering.

Asset managers in particular have been running some large sterling short positions, and with volatility falling, we are probably seeing some position liquidation, he said.

UK politics is seen as a non-factor for now, Andy Burnham is expected to become Labour leader and prime minister on July 20, with his choice of chancellor and first budget, likely in early November, seen as the next domestic catalysts.

ING flagged Ed Miliband’s potential appointment as chancellor as “probably a little sterling negative.”

On the euro, ING’s baseline view is that EUR/USD retests $1.1300 over coming weeks as markets price a 50bp U.S. central bank hike this year, though a house view of no central bank hike could see the pair trade back into the 1.16/1.18 range by November/December.

Softer eurozone inflation, 2.8% headline in June versus 3.2% in May, and dovish comments from ECB President Christine Lagarde have added pressure, though ING’s macro team cautioned a September ECB hike, currently pricing 15bp, is not completely off the table as energy subsidies expire.