FX Update: Dollar Supported by Oil and Risk Sentiment, Sterling Hit by Political Uncertainty, Euro Drifts Lower.

USD – Remains supported, with safe-haven demand and rising oil prices underpinning strength, though conviction is still not strong enough for a decisive breakout.

EUR – Slightly softer in the near term, pressured by broader dollar strength and external sentiment rather than domestic fundamentals.

GBP – The weakest of the three: political uncertainty and rising risk premiums are weighing heavily on sterling.

USD:

A degree of caution has returned to markets, helping the dollar regain some upward traction. Higher oil prices have added to this support, driven by concerns over how long it may take for the US and Iran to reach an შეთანხმ, with oil flows through the Strait of Hormuz effectively halted for now. This backdrop has lifted the dollar while commodity-linked currencies such as CAD and NOK have also outperformed.

European currencies gave back some gains against the dollar during yesterday’s session. Looking ahead, attention turns to several Federal Reserve speakers, including Waller, Daly, and Barkin. While other major central banks are seeing increased pricing for rate hikes, market expectations continue to lean toward the Fed holding rates steady through 2026. This divergence is helping keep the dollar supported, even if momentum remains measured.

EUR:

The euro edged lower as the stronger dollar dominated market direction. At present, price action is being driven more by global sentiment and oil market developments than by eurozone-specific fundamentals, leaving the single currency somewhat reactive rather than leading.

Domestic factors have taken a back seat, with little impact on recent trading. Instead, developments in the Middle East and energy markets remain the key drivers. Markets are also looking ahead to a potential rate decision on April 30th, though for now the euro may continue to drift slightly lower unless external conditions shift in its favour.

GBP:

Sterling has come under renewed pressure, emerging as a clear underperformer over the past 24 hours. Political risk has resurfaced as a key drag, following renewed scrutiny around the Mandelson scandal and reports that he previously failed Foreign Office vetting. This has placed additional pressure on Keir Starmer, with political uncertainty rising.

Betting markets continue to reflect this instability, with expectations growing that Starmer could be out by year-end. This comes at a sensitive time ahead of local elections in May, where Labour could face notable losses.

As a result, sterling is struggling to find support. With political uncertainty elevated and no strong economic catalyst to offset it, the currency is likely to remain on the back foot in the near term.