Sterling remained close to the week’s top on Friday, trading little changed at 1.3420 as of 04:12 ET (08:12 GMT), as investors paused ahead of a key U.S. inflation release that could reshape near-term views on Federal Reserve policy and the dollar.
The pound has rebounded substantially since hitting a Monday trough of 1.3177, gaining roughly 1.9% over the week amid improved risk appetite tied to ceasefire optimism between the US and Iran. That shift in sentiment has helped push the dollar index to just below 99 and supported cable’s best five-day return since late January, a period when GBP/USD briefly reached 1.3869.
Despite the gains, market participants are showing signs of caution. ING strategist Francesco Pesole noted that many positives appear already priced into currencies, raising the bar for additional dollar weakness as headline U.S. inflation data approaches.
The central event for the session is the U.S. consumer price index for March, which is expected to show headline inflation jumping 0.9 percentage points to 3.4% year-on-year. A materially higher-than-expected reading would complicate efforts to maintain bearish positions on the dollar, particularly as markets are currently pricing about 7 basis points of Federal Reserve easing by year-end. Core CPI is forecast to rise modestly from 0.2% to 0.3% month-on-month, a move analysts say is unlikely by itself to meaningfully alter Fed pricing.
Elsewhere in major currency markets, EUR/USD was steady at 1.1685, a touch below Thursday’s 1.1724 high, after the euro closed the first full week of April up 0.82%. ING sees the euro stabilising around or slightly below the 1.1700 level. Expectations of further European Central Bank rate increases remain a key support for the euro, with markets pricing close to 55 basis points of additional ECB tightening by year-end and June and September noted as the most likely windows for such moves. That differential continues to underpin the euro versus lower-yielding peers such as the yen and the Swiss franc.
By contrast, sterling faces a relatively softer outlook versus the euro. The Bank of England is increasingly seen as the more likely central bank to pivot toward a dovish stance, particularly if energy prices moderate further. Market attention is also on upcoming commentary from Bank of England Governor Andrew Bailey, which could provide signals on the bank’s policy trajectory.
Geopolitical developments remain the dominant theme across G10 currencies. The prevailing ceasefire sentiment is widely regarded as fragile, with continued Israeli activity in Lebanon adding tensions to U.S.-Iran negotiations. Should a lasting agreement materialise and normal flows resume through the Strait of Hormuz, ING says there is room for another leg lower in the dollar, with the Australian dollar and Norwegian krone seen as among the better-positioned beneficiaries.
For now, markets are balancing recent risk-positive moves with the possibility that the U.S. inflation print could reset expectations and prompt a repricing of interest-rate paths across major central banks.