Dollar Driven by Fed and Geopolitics, Euro Follows USD Dynamics, Sterling Weighed by Political and Policy Uncertainty.

USD – The dollar’s outlook is being shaped by Fed rate cut expectations, rising geopolitical tensions supporting safe-haven demand, and upcoming inflation and labour data likely to drive near-term volatility.

EUR – The euro’s direction remains largely dependent on US data and global risk sentiment, with the ECB maintaining a cautious policy stance and limited eurozone catalysts.

GBP – Sterling remains pressured by rising oil prices, uncertainty around Bank of England policy, and ongoing UK political instability affecting investor sentiment.

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USD:

Expectations around Federal Reserve policy remain a key driver for USD direction. Markets continue to debate the timing and scale of potential rate cuts later in 2026, with some analysts warning that deeper easing from the Fed could lead to further downside for the dollar over the course of the year. The escalation of conflict in the Middle East has pushed oil prices sharply higher, which has historically supported the greenback due to the United States’ position as a major energy producer and the dollar’s dominant role in global trade and finance. As a result, the dollar has attracted defensive inflows while markets assess the inflationary impact of rising energy costs and what it may mean for the Federal Reserve’s policy outlook. Short-term volatility is likely to remain elevated, with inflation and labour-market releases acting as the main catalysts for the dollar in the coming days.

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EUR:

the near-term direction for the euro is likely to remain closely tied to US macroeconomic releases and broader market sentiment, particularly inflation and labour market data that could influence expectations for Federal Reserve policy. Without major eurozone data catalysts, EUR/USD is likely to continue trading primarily as a function of dollar dynamics and global risk appetite. From a policy perspective, the European Central Bank has maintained a cautious wait-and-see stance, with interest rates left unchanged as inflation moves closer to target and policymakers assess the broader economic outlook.

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GBP:

Sterling remains under pressure as global risk aversion and the surge in oil prices weigh on currencies of energy-importing economies. At the same time, uncertainty surrounding the Bank of England’s policy path and domestic economic momentum continues to limit sterling’s recovery, leaving the currency vulnerable to further volatility as markets react to geopolitical developments and shifts in global risk sentiment. A key driver for sterling has been political uncertainty in Westminster, which has periodically unsettled markets. Recent resignations among senior aides to Prime Minister Keir Starmer triggered speculation about leadership stability and fiscal policy direction, briefly pushing UK borrowing costs higher and weighing on the pound before sentiment stabilised.

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