FX Market Update: Dollar Softens as Risk Sentiment Improves, EUR and GBP Advance on Rate Expectations.

• USD – Softening as safe-haven demand fades amid improving geopolitical sentiment, with the dollar index drifting lower and risk appetite lifting equities back to pre-conflict levels.
• EUR – Strengthening modestly, supported by USD weakness and sustained expectations for ECB tightening, though gains remain tied to central bank guidance.
• GBP – Regaining ground and outperforming near-term, supported by hawkish rate expectations and a rebound in GBPUSD to pre-conflict highs.

USD:

The dollar is losing momentum as geopolitical tensions show tentative signs of easing, reducing demand for safe-haven assets. The U.S. Dollar Index has declined notably from its late-March peak, with markets increasingly pricing a scenario where the conflict has limited global economic fallout. Equity markets, including the S&P 500, have recovered to pre-war levels, reinforcing the shift in sentiment.

Attention now turns to a heavy slate of Federal Reserve speakers, including Goolsbee, Barr, and Paulson, alongside key data releases such as the NFIB small business index and March PPI inflation. The headline PPI is expected at 1.1% month-on-month, with core at 0.4%, which could influence near-term rate expectations. Overall, the dollar looks vulnerable to further softness if risk sentiment continues to improve and inflation data does not surprise to the upside.

EUR:

The euro has gained traction, with EURUSD rebounding sharply as the dollar weakens. The move reflects both external USD dynamics and continued confidence in the European Central Bank’s policy trajectory. Markets are still pricing in around three rate hikes this year, keeping the euro supported.

Focus today will be on ECB speakers, including Rehn, Lane, and President Lagarde, at the IMF meetings in Washington. Their guidance will be key in determining whether policymakers validate current market expectations. While slightly softer oil prices offer some राहत on inflation, the broader outlook remains constructive for the euro, particularly if ECB rhetoric stays aligned with tightening expectations.

GBP:

Sterling is showing renewed strength, with GBPUSD climbing to its highest level since before the Iran conflict. This move is largely driven by dollar weakness but is also underpinned by relatively firm expectations for Bank of England policy, with markets leaning towards two rate hikes this year.

Attention turns to remarks from MPC members Mann, Greene, and Governor Bailey. While Mann is expected to maintain a hawkish stance, the tone from Greene and Bailey will be more important in shaping market expectations. If their commentary supports the current tightening bias, sterling could extend gains. However, as with EUR, much of the upside remains dependent on continued USD softness rather than purely domestic drivers.

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