Dollar Supported but Volatile, Euro Weighed by Energy Pressures, Sterling Range-Bound on Mixed Drivers.

USD – The dollar remains strong on safe-haven demand and yield support, though increasingly volatile as Fed expectations shift and positioning becomes sensitive to geopolitical headlines.

EUR – The dollar remains strong on safe-haven demand and yield support, though increasingly volatile as Fed expectations shift and positioning becomes sensitive to geopolitical headlines.

GBP – Sterling is range-bound, supported by higher rate expectations but constrained by a challenging UK economic backdrop and strong USD dynamics.

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USD:

The dollar continues to benefit from its dual role as both a safe-haven and a yield currency. In periods of risk aversion, capital flows into the USD for safety, while elevated yields attract additional investment from global investors seeking return. This combination has made the dollar one of the strongest-performing major currencies in recent sessions. However, there are signs that the rally is becoming increasingly headline-sensitive and prone to pullbacks. Any indication of easing geopolitical tensions or stabilisation in oil prices has triggered short-term USD weakness, suggesting positioning is becoming crowded and vulnerable to shifts in sentiment. Markets are also continuing to reassess the Fed’s policy path, with rate cut expectations pushed further out. Earlier expectations for multiple cuts in 2026 have been pared back significantly, as persistent inflation risks—particularly from energy—complicate the outlook for monetary easing.

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EUR:

A key ongoing headwind is the energy-driven macro environment. Elevated oil and gas prices continue to weigh disproportionately on the eurozone, given its reliance on imported energy. This is worsening the region’s growth-inflation trade-off, as higher costs feed into inflation while simultaneously dampening economic activity—an inherently negative mix for the euro. The euro is trading with a soft and slightly pressured tone, as EUR/USD continues to hover near recent lows with limited signs of a sustained recovery. The broader backdrop remains unfavourable, with persistent US dollar strength and cautious global sentiment keeping the single currency on the defensive. The euro remains in a weak position, with rallies struggling to gain traction and selling pressure emerging on any attempts to move higher. Market positioning suggests that upside is likely to remain capped unless there is a meaningful shift in either USD direction or energy market dynamics.

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GBP:

The UK macro backdrop remains challenging, with rising energy costs expected to push inflation higher while simultaneously squeezing real incomes and dampening consumption. This creates a difficult policy environment for the Bank of England, as it must balance inflation control with the risk of slowing growth—adding uncertainty to the outlook for the pound. A key driver underpinning the pound is the continued repricing of Bank of England expectations. Markets have shifted away from anticipating near-term rate cuts and are increasingly leaning toward a prolonged period of restrictive policy, or even the possibility of further tightening, as energy-driven inflation risks build. This has supported UK gilt yields and provided a degree of support for sterling, particularly relative to European peers. From a market perspective, sterling is range-bound but reactive, with investors hesitant to take strong directional positions amid mixed signals. While relative rate support is helping on crosses like GBP/EUR, it is not sufficient to offset broader USD strength in the current environment.

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