Dollar Firm but Volatile, Euro Pressured by Energy Shock, Sterling Mixed on Policy and Risk Sentiment.

USD – The dollar remains firm but volatile, supported by safe-haven demand, rising oil prices, and shifting Fed expectations, with upcoming data and geopolitical developments key for direction.

EUR – The euro is under pressure from USD strength and elevated energy prices, with the ECB’s cautious stance unable to offset growth and inflation concerns.

GBP – Sterling is mixed, supported by shifting BoE expectations but constrained by global risk aversion and energy-driven economic headwinds.

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USD:

The US dollar is holding a firm but increasingly volatile position, as markets react to rapidly shifting geopolitical headlines. While ongoing tensions in the Middle East continue to support safe-haven demand, there are also signs of short-term pullbacks as hopes for de-escalation emerge, creating volatile price action. A core driver remains the surge in oil prices, with crude trading back above the $100 mark amid supply disruption fears linked to the Strait of Hormuz. At the same time, markets are actively repricing Federal Reserve expectations. With energy-driven inflation risks rising, investors are scaling back expectations for rate cuts and shifting toward a more prolonged period of higher interest rates. Looking ahead, key catalysts for the dollar include US PMI data, labour market indicators and further geopolitical developments

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EUR:

The euro is trading with a clear downside bias today, as renewed strength in the US dollar and persistent geopolitical tensions continue to weigh heavily on EUR/USD. A major headwind for the single currency remains the ongoing energy shock, with oil prices holding elevated levels following disruption to global supply routes. Given the eurozone’s reliance on imported energy, this dynamic is worsening the region’s terms of trade and growth outlook, making the euro particularly sensitive to further spikes in oil prices. On the policy front, the European Central Bank remains cautious, maintaining a wait-and-see stance as it balances rising inflation risks, driven by energy prices, against a weakening growth outlook.

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GBP:

Sterling is trading with a mixed but fragile tone, showing resilience against the euro while remaining under pressure versus the US dollar. Recent price action reflects a tug-of-war between supportive rate expectations and global risk aversion. A key driver for the pound is the sharp repricing of Bank of England expectations. Markets have shifted from anticipating rate cuts to pricing in the possibility of rate hikes or prolonged higher rates, as rising energy prices push inflation risks higher. However, sterling remains sensitive to global risk sentiment, particularly developments in the Middle East. Periods of escalation have driven flows into the US dollar. The energy shock remains a central macro headwind for the UK economy. Rising oil and gas prices are expected to push inflation higher while simultaneously squeezing household incomes and slowing growth, creating a difficult backdrop for policymakers and limiting sustained GBP upside.

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