FX Update: Dollar Supported by Geopolitics, Euro Inflation in Focus, Sterling Under Pressure.

USD – Remains firm, supported by geopolitical uncertainty and cautious sentiment, with the dollar staying bid despite mixed signals.

EUR – Facing upward inflation pressures from rising energy prices, but rate expectations remain uncertain, keeping gains in check.

GBP – The weaker link for now: continued underperformance, weak growth, and heavy reliance on external (energy-driven) factors are weighing on sterling.

USD:

The dollar extended gains yesterday before easing slightly overnight, as markets navigate conflicting geopolitical headlines. Reports suggest potential US escalation in Iran, including possible operations targeting uranium sites, while contrasting signals indicate a willingness to withdraw within weeks. Additional threats to Iranian infrastructure have kept markets cautious and the dollar supported.

Fed Chair Powell struck a relatively calm tone, not raising significant concern over inflation. Today’s focus turns to US consumer confidence and the JOLTS job openings data, with sentiment expected to weaken amid ongoing geopolitical tensions.

EUR:

The euro’s focus today is on a sharp expected rise in inflation, with March CPI forecast to jump from 1.9% to 2.6%. Germany has already seen a significant increase to 2.8% — a two-year high — driven by surging energy prices following disruption in the Strait of Hormuz.

Despite rising inflation, markets are less convinced about a near-term rate hike, with April currently seen as a roughly 50/50 probability. This leaves the euro supported by inflation dynamics but capped by uncertain policy direction.

GBP:

Sterling continued to weaken, underperforming both against the dollar and on the crosses. The final estimate for Q4 GDP came in unchanged at a modest 0.1%, offering little support for the currency.

With limited domestic catalysts, GBP remains heavily influenced by energy markets. Notably, reports suggest the UK is set to receive its final Middle Eastern jet fuel shipment this week, highlighting the near-term impact of geopolitical disruptions.

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