Dollar Rises, Pound Falters, Euro Holds Steady.

• USD strengthened on indications of delayed Fed policy tightening due to strong labor markets and persistent inflation.
• GBP weakened amid escalating Middle East tensions and a more hawkish Fed stance, with Powell’s remarks diminishing rate cut expectations.
• EUR traded steadily above 1.0650, with market caution prevailing ahead of Lagarde’s speech and amidst geopolitical tensions.
• Concerns over US inflation pushed expectations for the Fed’s first rate cut to year-end, while the ECB may act in June.
• Despite geopolitical uncertainty, the euro remained resilient, supported by cautious market sentiment and anticipation of central bank actions.

USD: The US dollar, measured by the DXD index, surged to multi-month highs recently, fueled by indications that the Federal Reserve might delay tightening its policy stance. Strong labor markets and persistent inflation dashed hopes for imminent rate cuts, driving Treasury yields higher. Key economic reports, including first-quarter GDP and the March core PCE deflator, could further bolster the dollar’s strength. Expectations suggest GDP growth slowed slightly from the previous quarter but remained above potential output, while core PCE is seen moderating, indicating persistent price pressures. An upside surprise in data could delay rate cuts and maintain upward pressure on yields, supporting the dollar’s bullish momentum.

GBP: Concerns over escalating tensions in the Middle East, coupled with a more hawkish Fed outlook, boosted demand for the US dollar at the expense of the British pound. Iran’s drone attacks on Israel and the US’s response heightened market caution, leading to risk aversion. Fed Chair Powell’s remarks signaling a reluctance to ease policy soon added to dollar strength, diminishing expectations of rate cuts this year. Market sentiment turned bearish as investors reassessed their outlook, with bets on Fed rate cuts for June and July slashed.

EUR: The euro traded steadily above 1.0650 amid a cautious market atmosphere and anticipation of President Lagarde’s speech. Geopolitical tensions, particularly in the Middle East, temporarily sidelined discussions on central bank interest rate cuts. While the US faces persistent inflation, expectations for the Fed’s first rate cut have shifted to year-end, while the ECB may act in June. Despite the current calm, geopolitical developments could quickly alter market dynamics, underscoring the euro’s resilience amidst uncertainty.