FX Market Update: Sterling Smells Opportunity.

USD – The dollar remains under pressure this morning as softer US yields continue to weigh on sentiment, although expectations of further Fed tightening continue to prevent a deeper sell-off.

EUR – Has edged higher against the dollar, but gains remain limited as concerns surrounding France’s fiscal position and a broader bearish technical backdrop continue to act as headwinds.

GBP – Continues to benefit from the softer dollar environment, with GBP/USD holding relatively comfortably near recent highs despite a lack of major UK-specific catalysts.

USD: The dollar’s retreat remains the dominant market theme heading into today’s session. Lower Treasury yields have reduced some of the greenback’s appeal, allowing major currencies to recover ground after a prolonged period of dollar strength. However, the move lower has been relatively orderly rather than aggressive.

Interestingly, despite recent weakness in the Dollar Index, markets remain wary of becoming too bearish on the currency.

Expectations that the Federal Reserve could maintain a tighter stance if inflation persists continue to provide support beneath the market. Gold’s inability to build on its recent rebound also highlights the lingering belief that US monetary policy may remain restrictive for longer than many investors anticipated.

EUR: The euro has managed to benefit from the softer dollar backdrop, although it remains far from convincing.

EUR/USD has edged higher in recent sessions, but gains continue to be capped by concerns surrounding France’s debt situation and ongoing questions over Eurozone growth prospects. UOB notes that range trading remains the dominant theme, with the pair largely confined to recent levels rather than establishing a new trend.

From a technical perspective, the outlook remains cautious. EUR/USD continues to trade below its 100-day moving average, and analysts maintain a generally bearish bias while the pair remains close to the 1.1200 area. For now, the euro appears to be rising largely because the dollar is falling, rather than due to any significant improvement in the European outlook.

GBP: Sterling is quietly having another decent session.

While there have been no major UK developments overnight, the pound continues to benefit from the broader dollar pullback and remains well supported against its US counterpart. GBP/USD has enjoyed a strong recovery over recent weeks and is beginning to look far healthier than it did earlier this month.

Compared to the euro, sterling’s outlook remains relatively constructive. The UK still faces its own economic challenges, but investors appear more comfortable holding pounds than euros at present. As long as the dollar remains under pressure, sterling may continue to outperform, particularly if UK interest rate expectations remain relatively elevated.

Economic Calendar

Expected Previous
09:00 BST - EUR Eurozone Composite PMI 52.7 53.1
09:00 BST - EUR Eurozone Manufacturing PMI 52.7 52.7
09:00 BST - EUR Eurozone Services PMI 52.5 53.0
09:30 BST - GBP UK Manufacturing PMI 51.7 52.0
13:30 BST - CAD Canada Retail Sales MoM 1.3% 0.7%
15:00 BST - USD US Michigan Consumer Sentiment 46.3 48.1

*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.