Dollar Stabilises on Yields, Euro Gains Lack Conviction, Sterling Supported but Outlook Mixed.

USD – The dollar is softening on reduced safe-haven demand but remains supported by elevated yields and a cautious Fed outlook, leaving it range-bound and data-sensitive.

EUR – The euro is modestly firmer on USD weakness, but fragile fundamentals and a cautious ECB leave it vulnerable to renewed dollar strength.

GBP – Sterling is stronger on improved sentiment and USD weakness, but faces a mixed outlook as softer BoE expectations and UK growth concerns cap upside.

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USD:

The US dollar is trading with a softer but stabilising tone, as markets continue to digest the impact of the recent US-Iran ceasefire and shifting global sentiment. The easing of geopolitical tensions has reduced safe-haven demand, prompting a pullback in the dollar. At the same time, Federal Reserve expectations remain a key anchor, with policymakers maintaining a cautious stance amid lingering inflation risks. While some easing expectations have re-emerged, markets still anticipate relatively elevated US rates, helping to limit USD downside. The dollar is now increasingly driven by yield differentials and incoming macro data, leaving it range-bound but sensitive to headlines and data releases. US Treasury yields remain relatively elevated, providing an important floor for the dollar. Even as yields have eased slightly, they are still high compared to other major economies, meaning the USD continues to benefit from favourable rate differentials.

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EUR:

The euro is trading modestly firmer, supported by the softer dollar and improved risk sentiment following the ceasefire. However, the move higher remains largely USD-driven rather than fundamentally supported, with the eurozone still facing structural challenges. Recent data continues to highlight a fragile economic backdrop, with business activity slowing across key economies and growth remaining subdued. At the same time, the ECB remains cautious, balancing inflation risks against weakening demand, which limits the euro’s ability to generate sustained upside. As a result, EUR/USD remains vulnerable to renewed USD strength if global sentiment shifts. Monetary policy dynamics are also playing a role. Markets are increasingly pricing in potential ECB rate hikes later in 2026, as policymakers respond to inflation risks.

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GBP:

Sterling is trading stronger, extending recent gains as improved risk sentiment and USD weakness support the currency. The pound has benefited significantly from the ceasefire-driven rally, with GBP/USD rising toward recent highs as investors rotate out of safe-haven positions. However, the outlook remains mixed. While easing geopolitical tensions have supported GBP in the short term, markets have also scaled back expectations for aggressive Bank of England tightening, reflecting concerns about the UK growth outlook. In the near term, sterling is likely to remain supported but volatile, with direction driven by global risk sentiment, BoE expectations and upcoming UK data, while broader macro challenges continue to cap stronger upside.

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