FX Market Update: Geopolitics Lift the Dollar as Markets Watch Economic Data.

• USD – Remains relatively firm, supported by safe-haven demand amid escalating geopolitical tensions, though further gains will likely depend on developments in the Middle East.

• EUR – Is holding a neutral to moderately positive position, but rising energy prices and shifting rate expectations are limiting upside potential.

• GBP – Has shown resilience despite political uncertainty, with stable labour market data helping sterling recover after an initial bout of volatility.

USD:

The dollar edged higher yesterday as escalating tensions in the Middle East increased demand for safe-haven assets. With reports of rising US casualties and concerns that retaliatory action could disrupt oil flows through the Gulf, geopolitical risk has become the primary driver of market sentiment. Adding to these concerns, the Houthis announced a blockade against Saudi Arabian vessels, further fuelling fears of energy supply disruptions. On the data front, today’s focus is limited to the weekly ADP employment report, leaving markets largely driven by geopolitical developments ahead of Friday’s PMI releases.

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EUR: 

The euro has recovered modestly over recent hours but remains under pressure from the sharp rise in energy prices, which has weighed on the single currency as interest rate differentials shifted back in favour of the dollar. Attention today turns to the latest ZEW economic sentiment surveys for Germany and the wider eurozone. Expectations are for investors to remain pessimistic about current economic conditions while maintaining cautious optimism regarding the outlook. Unless sentiment surprises positively, the euro may struggle to generate sustained upside while energy prices remain elevated.

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GBP: 

Sterling has demonstrated resilience despite an eventful political backdrop. Newly appointed UK Prime Minister Andy Burnham surprised markets by appointing John Healey as Chancellor and signalling that his government would make full use of the flexibility within existing fiscal rules, including plans to remove VAT on household electricity bills. While gilt markets initially reacted negatively, sterling recovered much of its losses by this morning. Supporting the currency, the latest labour market report showed private sector wage growth holding steady at 2.9%, while the decline in payrolled employees was significantly smaller than expected. These figures suggest the UK labour market remains relatively resilient, helping to underpin sterling in the near term.

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