Dovish Fed Weighs on Dollar; Euro Stable, Sterling Struggles.

• USD – Dollar softens as the Fed’s dovish-leaning tone reinforces expectations for early-2026 rate cuts.

• EUR – Euro remains firm after the ECB reaffirmed a cautious, data-dependent policy stance.
  

• GBP – Sterling stays under pressure following confirmation of weak UK growth.

USD:

The U.S. dollar is trading on a softer footing at the start of the week as markets continue to digest last week’s Federal Reserve meeting and updated policy guidance. While the Fed held rates steady, its tone was interpreted as slightly more dovish, reinforcing expectations that rate cuts could begin in early 2026 if inflation continues to trend lower. Treasury yields have eased modestly as a result, weighing on USD across the board. With the bulk of key U.S. data now behind us for the year, near-term dollar direction is likely to be driven by positioning adjustments, risk sentiment, and year-end flows rather than fresh macro catalysts. The bias for USD remains gently lower, though any deterioration in global risk appetite could still provide temporary support.

EUR: 

The euro is holding firm following last week’s ECB meeting, where policymakers reiterated a cautious, data-dependent approach and pushed back against near-term rate-cut expectations. This stance has helped underpin EUR, particularly against currencies more closely tied to imminent easing cycles. Recent euro-area data has been broadly stable, offering reassurance that growth is not deteriorating sharply, even as inflation continues to cool gradually. EUR/USD remains near the upper end of its recent range, supported by narrowing rate differentials with the U.S. Momentum remains measured rather than aggressive, but the euro continues to benefit from relative policy stability as markets move toward year-end.

GBP: 

Sterling remains under modest pressure as UK-specific concerns continue to weigh on sentiment. Last week’s GDP data confirmed a sluggish growth backdrop, reinforcing expectations that the Bank of England will need to tread carefully as inflation eases and economic momentum remains weak. The lingering effects of the Autumn Budget are still being assessed, with investors cautious about the outlook for domestic demand heading into 2026. GBP/USD is trading defensively, while EUR/GBP remains biased higher as investors favour the eurozone’s comparatively steadier macro and policy environment. With limited UK data scheduled this week, sterling is likely to remain sensitive to broader FX moves and risk sentiment rather than domestic drivers.