FX Market Update – Dollar Holds Firm as Geopolitical Risks Persist, Sterling Hit by Weak UK Labour Data.

• USD – Remains relatively firm, supported by geopolitical uncertainty and cautious risk sentiment, though conviction behind further upside remains limited.

• EUR – Is consolidating but retains a modestly constructive outlook, supported by growing expectations of further ECB tightening.
  

• GBP – Faces pressure from deteriorating labour market data, although reduced political noise is helping sterling remain relatively resilient for now.

USD:

The dollar index softened slightly yesterday but still remains around 1.4% higher compared to levels seen a week and a half ago. The greenback continues to draw support from broader geopolitical uncertainty, particularly surrounding tensions with Iran. Although President Trump announced that he had cancelled a planned “very big” attack on Iran following pressure from regional allies and progress in negotiations, markets remain cautious given Iran’s continued refusal to include its nuclear ambitions in discussions — a key US demand.

Attention today turns to ADP employment data and comments from Federal Reserve Governor Waller in Frankfurt, both of which could help shape expectations around the Fed’s next policy steps. Broader market sentiment remains defensive, helping underpin the dollar for now, though the lack of a decisive catalyst continues to limit the scope for a sustained breakout higher.

---

EUR: 

The euro has started the week in a more consolidative fashion as markets await further developments surrounding Iran alongside several key economic releases due over the coming days. Despite the softer tone recently, the single currency remains supported by expectations that Eurozone inflation pressures may persist into this month.

Rates markets have continued to increase their confidence in a June ECB rate hike, with expectations now sitting around 87%. This has helped provide the euro with a relatively stable footing against both the dollar and sterling. While near-term upside may remain somewhat measured amid cautious broader market sentiment, the ECB’s tightening outlook continues to offer underlying support to the currency.

---

GBP: 

Sterling is under modest pressure following this morning’s UK labour market release from the ONS, which showed the economy shed 100K jobs in April — significantly weaker than the 10K decline expected by markets. At the same time, the unemployment rate rose to 5.0% in March, reinforcing concerns that labour market conditions are beginning to soften more materially.

The weaker employment backdrop may lead policymakers to reassess expectations for further tightening, particularly given markets are currently pricing in two Bank of England rate hikes for 2026. Investors will therefore closely watch comments from BoE’s Breeden today for further policy guidance. Despite the softer economic backdrop, sterling has held up relatively well this morning, aided in part by a temporary lull in domestic political developments.

Economic Calendar