FX Market Update: Dollar rally accelerates, leaving euro and pound exposed.

USD – Continues to strengthen as markets price a more hawkish Federal Reserve, with elevated yields and firm inflation expectations supporting demand for the dollar.

EUR – Remains under pressure, with downside risks persisting despite short‑term rebounds, as weaker momentum and ECB repricing weigh on sentiment.

GBP – Holds relatively steady but remains fragile, with limited domestic drivers and broader USD strength capping upside despite recent stability above key levels.

USD:

The dollar remains well supported, with markets continuing to price a more hawkish Federal Reserve ahead of key inflation data. Expectations for higher US rates, particularly with core PCE seen remaining firm, are keeping yields elevated and attracting steady inflows into USD. This combination of macro strength and policy expectations continues to underpin the dollar, with recent gains also supported by momentum as the move extends. The overall bias remains to the upside unless there is a clear shift in inflation data or Fed communication.

EUR:

The euro continues to trade under pressure, despite brief attempts to stabilise above recent lows. EURUSD has rebounded marginally but remains within a broader downtrend, with downside risks still in focus given weaker Eurozone data and reduced expectations for further ECB tightening. Rate differentials versus the US remain a key headwind, and while short‑term consolidation is possible, the overall tone remains soft, leaving the euro vulnerable to further declines.

GBP:

Sterling is holding up relatively well in the near term, maintaining levels above the mid‑1.31 area as markets await key US inflation data. However, the move lacks strong conviction, with the pound still heavily influenced by broader USD dynamics rather than domestic drivers. While the absence of immediate negative UK catalysts has helped stabilise price action, underlying risks remain to the downside, particularly if USD strength continues to build.

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