Dollar Steady Ahead of Key US Data as Sterling Weakens and Euro Holds Ground.

USD – Remains relatively firm, supported by safe-haven demand and hawkish global central bank signals, though markets are holding back ahead of key US GDP and core PCE inflation data.

EUR – Is holding in a relatively balanced position, with limited downside for now, though near-term direction remains largely dependent on upcoming US data and inflation developments.

GBP – Is under renewed pressure as markets continue to scale back expectations for Bank of England tightening following softer UK activity and inflation data.

USD:

The dollar made some gains yesterday before giving them back overnight. Trading is quieter this morning as markets wait for tomorrow’s US GDP and core PCE inflation data, both of which could shape expectations around the Federal Reserve’s next move. In the meantime, attention turns to comments from Fed officials Logan and Cook, alongside the latest ADP employment report after last week’s stronger-than-expected print.

The broader FX market has also been influenced by a more hawkish tone globally. The Reserve Bank of New Zealand surprised markets with a hawkish hold overnight, with policymakers reportedly split 3-3 between holding rates and hiking. The shift reflects growing concern over inflationary pressures stemming from disruptions in energy markets linked to the Strait of Hormuz tensions. As a result, the New Zealand dollar is outperforming this morning, while the USD remains supported by broader risk uncertainty and safe-haven flows.

EUR:

The euro has largely returned to where it started the week after briefly dipping yesterday. While today’s calendar includes speeches from ECB officials and the release of the ECB’s financial stability review, EURUSD direction remains predominantly tied to US developments for now.

The euro continues to benefit from a relatively stable backdrop compared with the uncertainty surrounding US policy and global risk sentiment. However, without a major catalyst from the Eurozone itself, gains remain limited. Markets are now looking ahead to Friday’s country-level inflation data for clearer guidance on the European Central Bank’s policy outlook.

GBP:

Sterling weakened notably yesterday as markets further pared back expectations for Bank of England tightening this year. Swap markets, which had previously priced in three rate hikes, have now shifted to reflect only one fully priced hike, with another seen as roughly a 50/50 possibility.

The move appears to be a delayed reaction to last week’s softer UK activity and inflation data, which reinforced concerns that the Bank of England may have limited scope to tighten policy further without placing additional strain on the economy. While inflation remains elevated, slowing momentum in the broader economy and uncertainty around the fiscal outlook continue to weigh on sterling sentiment in the near term.

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