Stronger US Dollar, Higher Oil Prices & Dovish ECB Comments Shape FX Markets.

USD – Has regained some upward momentum, supported by renewed geopolitical uncertainty, oil prices above $105, and higher US yields as markets focus on inflation and economic data.

EUR – Remains under pressure after dovish comments from ECB President Lagarde reduced expectations for further rate hikes, while stronger-than-expected Spanish inflation adds to the uncertainty around the ECB’s next steps.

GBP – Gained against the euro on UK political headlines but remains under pressure against the dollar, with a quiet UK data calendar leaving US developments to drive near-term direction.

USD: The US dollar has regained some upward momentum overnight as Iran signalled that a deal was not imminent, increasing safe-haven demand. Oil continues to trade above $105, keeping inflation expectations elevated and supporting US yields. Today’s focus is on September consumer confidence and August JOLTS job openings, with openings expected at 7.2m, down from 7.3m in July, while consumer confidence is expected to remain relatively steady at 89.0.

EUR: The euro remains under pressure following surprisingly dovish comments from ECB President Lagarde, which added to EUR/USD’s recent decline. She highlighted that recent rate hikes were helping to shield the economy from higher energy costs and called for a “measured response”, reducing expectations for further rate hikes. Spanish inflation also came in above expectations, rising from 4.6% to 5.0% year-on-year versus 4.9% expected, with German and French inflation figures due tomorrow.

GBP: Sterling gained against the euro yesterday following political headlines around housing support schemes and care reforms, although the dollar’s renewed strength has erased those gains against GBP/USD. With the UK data calendar remaining relatively quiet, US economic data and broader market sentiment are likely to dominate FX trading. UK political developments remain in focus, with PM Burnham also due to speak today.

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