FX Market Update: USD Resilient, EUR Steady, GBP Under Pressure.

USD – Remains solid, supported by safe-haven demand and ongoing uncertainty, but still lacks the momentum needed for a decisive upside breakout.

EUR – Sits in a moderate position of strength, underpinned by relative policy stability and lingering dollar uncertainty.

GBP – Remains the weaker link: mixed inflation signals, growing expectations of a near-term rate cut, and fiscal uncertainty continue to weigh on sterling.

USD:

The dollar continues to trade in a relatively firm posture, supported by defensive flows, though conviction remains limited. The U.S. Dollar Index is holding near recent highs, but technical indicators suggest it remains constrained within a descending channel—implying upside may be capped in the near term. Market attention is focused on upcoming catalysts, notably the release of the Federal Open Market Committee minutes and the clearing of delayed U.S. economic data following the government shutdown. These releases should offer clearer guidance on whether the Federal Reserve is inclined toward another rate cut or prefers to remain on hold.

EUR:

The euro remains in a relatively favourable position versus the dollar. With U.S. data uncertainty and shutdown-related disruptions weighing on USD sentiment, the euro is benefitting modestly by comparison. The European Central Bank’s more predictable policy stance, combined with Eurozone inflation near target and only modest growth, has tempered expectations for imminent rate cuts. In this backdrop, the euro’s risk-reward profile appears balanced. It may trade sideways to modestly higher, provided the dollar stays under pressure and no major euro-area shocks emerge. Near-term outperformance against USD (and potentially GBP) is possible, though gains are likely to be capped without a shift in the broader risk environment.

GBP:

Sterling continues to show signs of softness, despite headline UK inflation printing slightly above expectations. CPI eased from 3.8% to 3.6%, with food inflation edging higher. Core CPI met expectations at 3.4%, while services inflation—closely watched by the Bank of England—cooled more than anticipated to 4.5%. While inflation remains elevated, the easing in services inflation keeps the door open for a rate cut as early as next month. In the absence of a clear positive data surprise or greater fiscal clarity, sterling’s upside potential remains limited.

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