FX Market Update: Dollar Softens on Risk Rally, Euro Hits Multi-Week High, Sterling Struggles for Momentum.

USD – Cooling as safe-haven demand fades amid improving global risk sentiment, though underlying uncertainty and political noise are limiting downside momentum.

EUR – Showing relative strength, supported by the broader risk-on environment rather than domestic drivers, with steady policy expectations underpinning gains.

GBP – Lacking conviction, with only modest support from stronger GDP data as concerns over sustainability of growth and a dovish policy outlook weigh on sterling.

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USD:

The dollar softened further yesterday as optimism around a potential resolution to the Iran conflict boosted global risk appetite. Equity markets reflected this shift, with the S&P 500 reaching a record intraday high and the Nasdaq extending its rally, supported in part by strong bank earnings. This environment has reduced demand for traditional safe-haven currencies like the dollar, while higher-beta currencies such as AUD, NOK, and SEK have benefited.

However, the broader macro picture remains mixed. Energy markets continue to signal underlying tension, with Brent crude holding near $95 per barrel, while rate markets still price in tightening from major European central banks. Political developments also weighed on the dollar, as Donald Trump renewed criticism of Federal Reserve Chair Jerome Powell, even suggesting he could be removed after his term ends—adding an element of policy uncertainty.

Attention now turns to US jobless claims data, which may provide further insight into the resilience of the labour market and influence near-term Fed expectations.

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EUR:

The euro climbed to a fresh six-week high, extending its recovery from March lows to around 3.5%. Unlike prior moves driven by domestic fundamentals, this strength appears largely linked to the broader improvement in global risk sentiment rather than eurozone-specific developments.

That said, the backdrop remains supportive. Expectations for European Central Bank policy remain relatively steady, and markets continue to price in a more hawkish stance compared to peers. Today’s focus will be on the release of the ECB’s March meeting minutes, alongside speeches from several policymakers, which could provide further clarity on the policy path.

While the euro may remain supported in the near term, its gains could prove fragile if geopolitical tensions—particularly in the Middle East—re-escalate.

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GBP:

Sterling posted only modest gains despite stronger-than-expected UK GDP data, which showed a 0.5% month-on-month expansion in February. While the headline figure is encouraging, markets remain cautious given the UK’s recent pattern of strong early-year data that fades later, raising questions over the durability of this momentum.

The broader outlook remains challenging. The IMF continues to project that the UK economy will be among the hardest hit in the G7 due to the ongoing energy crisis, dampening optimism. Additionally, expectations for monetary policy remain dovish, with Bank of England policymaker Jonathan Taylor likely to reinforce a cautious stance in upcoming remarks.

As a result, without clearer evidence of sustained economic strength or a shift in policy expectations, sterling’s upside potential appears limited

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