Dollar gains ground; Pound gains ahead of Sunak’s appointment by

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By Peter Nurse – The U.S. dollar stabilised at lower levels in early European trade Tuesday as traders took into account a potentially less hawkish Federal Reserve. Sterling also benefited from increased risk sentiment as Rishi, Britain’s new prime minster, prepares to take office.

At 02:55 ET (06.55 GMT), the, which tracks greenback against six other currencies, edged higher at 111.980. This was close to Friday’s low, 111.70, which was the weakest since Oct. 6.

Monday’s October data showed that U.S. business activity contracted for the fourth consecutive month. This indicates that Fed’s aggressive monetary tightening had a significant impact on the dollar.

This led to the belief that central bank policymakers were reassessing their outlook on the future after November’s 75 basis point expected increase.

The Wall Street Journal reported last week that the pace at which rate hikes will continue after November’s lift was less clear. They cited sources familiar with Fed’s thinking.

Elsewhere, the index rose 0.1% to 1.1286. He is set to become Britain’s next leader Tuesday after beating ex-prime minister Boris Johnson, Penny Mordaunt and other candidates in a race for the head of Britain’s ruling Conservative Party.

Sunak has a lot of work ahead of him, with a tight budget and the Bank of England forecasting a recession by the end of this year.

He is credible because he opposed Liz Truss, the outgoing Prime Minister,’s plans to massive unfunded tax cuts. This will depend on whether he and his chancellor agree tax increases and realistically manageable spending restraint.

The German economy’s latest guide to business sentiment, the most important and largest in the Eurozone, saw 0.2% decline to 0.9856.

The October 83.3 drop is expected from the 84.3 in October. This is likely because high energy prices continue weighing, which will likely drag the German economy into recession next January.

The price rose to 148.99 with traders still on intervention monitor following possible Bank of Japan intercessions on Friday and Monday.

Analysts at ING wrote in a note that “The BoJ meets this Friday to set monetary policy. It seems difficult to expect a top USD/JPY anytime soon unless we see a shift its ultra-dovish outlook (a positive policy rate and ongoing quantitative easing).”

The yuan fell 0.3% to 0.6328 and rose 0.3% at 0.5708, thanks to rising risk sentiment. The yuan also fell 0.6% to 7.3070 due to growing concerns that the country’s new political leadership might jeopardize economic growth by implementing anti-business policies.

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