Balancing Acts and Breaking Ranks.

  • Powell stuck to a cautious but slightly hawkish stance, while Bowman leaned dovish.

  • Dollar stabilised, with US PMI weakness pointing mainly to labour market strain.

  • Euro largely ignored Ukraine headlines, though geopolitical risks linger.

  • German IFO data now in focus for the euro after strong PMIs.

  • Sterling faces headwinds as weak UK growth forecasts and high inflation weigh on outlook.

USD: Powell Stays the Course
Fed Chair Jerome Powell stuck to his careful script yesterday, acknowledging the trade-off between softer labour market signals and persistent inflation risks. His message carried a slightly hawkish tilt compared to the broader FOMC stance reflected in the Dot Plot.

Meanwhile, Michelle Bowman struck a more dovish tone, emphasising the need to act sooner to support employment—very much in line with the Fed’s dovish wing.

The dollar held steady overall, only marginally weaker against the euro. Diverging PMI prints drove the move: the US composite index fell more than expected to 53.6. Still, that level suggests the slowdown is concentrated in jobs, not across wider business activity.

We keep a mild bearish bias on the dollar into week-end, but with little data or Fed commentary scheduled today (only Mary Daly is due), volatility may continue to fade and the greenback could trade flat across most G10 pairs.

EUR: Shrugging Off Geopolitics
The euro sits comfortably near 1.180, broadly in line with our outlook. Markets continue to brush off Ukraine-related headlines, even after Trump claimed Kyiv could reclaim all its territory from Russia—a dramatic statement that traders treated cautiously given the lack of diplomatic momentum.

Risks for the euro remain tilted lower, particularly for higher-beta European FX, after Trump urged EU allies to take tougher military action against Russia.

Attention now turns to the German IFO, following stronger PMI results yesterday. While we keep a constructive view on EUR/USD near term, a move toward 1.200 is unlikely to be straightforward.

GBP: Growth Slips, Sterling Follows
Economic performance remains the ultimate driver of currency strength. For two consecutive years (2023–24), sterling ranked second in the G10 currency table, buoyed by resilient UK growth.

That narrative shifted in 2025: both growth and the pound lost momentum. Now, the OECD sees UK GDP expanding only 1.0% in 2026, implying prolonged underperformance for GBP.

As Tom Clougherty of the Institute of Economic Affairs notes, such meagre growth won’t meaningfully lift living standards—especially with the OECD also projecting the highest inflation rate in the G7. Any marginal gains will be quickly eroded.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.