Sterling and the euro posted modest declines on Wednesday as a firmer dollar and a rebound in crude oil dented market sentiment. At 09:05 ET (13:05 GMT), GBP/USD was down 0.26% at 1.3434 while EUR/USD eased 0.25% to 1.1602, with both major European currencies retreating against renewed greenback strength.
The immediate catalyst for the dollar's resilience was stronger-than-expected U.S. labour market data. April JOLTS job openings surprised to the upside, reaching their highest level since May 2024, reinforcing the view that the U.S. economy remains more resilient than many had anticipated. That resilience is prompting investors to reassess expectations for U.S. monetary policy and the timing of any further easing in financial conditions.
Market participants are now looking ahead to additional U.S. economic releases, including the ADP employment report, the ISM Services PMI and the Federal Reserve’s Beige Book. A continued run of firm data would bolster arguments for a higher-for-longer interest rate profile from the Fed and could push the Dollar Index toward the upper end of its recent trading range near 99.50-99.55.
Geopolitical developments are also shaping market moves. Hostilities in the Middle East have intensified after reports that an Iranian missile strike damaged Kuwait’s airport and following U.S. military operations near the Strait of Hormuz. While diplomatic contacts between Washington and Tehran remain ongoing, conflicting signals from both sides have left investors unconvinced that a durable resolution is close at hand. The uptick in tensions has supported oil prices, adding another inflationary consideration for central banks worldwide.
For EUR/USD, the combination of robust U.S. data and renewed concerns in energy markets has weighed on sentiment. Although markets still price some additional European Central Bank tightening, persistent gains in crude oil are viewed as a potential headwind for the eurozone economy. The pair therefore remains exposed to further downside if U.S. economic indicators continue to beat expectations.
Sterling's slide occurred against a backdrop of mixed domestic data. The S&P Global UK Services PMI fell into contraction territory for the first time in more than a year, and the Composite PMI dipped below the 50 mark. These readings signal cooling activity and raise questions about the momentum of the UK economy. At the same time, persistent input cost pressures were noted, leaving open the possibility that inflation could remain more stubborn than activity trends alone might suggest.
There were some offsets to the negative signals for sterling. UK new car registrations rose 6% year-on-year in May, and electric vehicles continued to increase their share of the market. Nonetheless, the broader mix of softer activity indicators and sticky input costs contributed to the pound's modest retreat on the day.
Overall, currencies sensitive to shifts in risk appetite and to energy prices were among the more affected market segments. Investors remain attentive to incoming economic releases and to geopolitical developments that could keep oil elevated and reinforce central banks' incentives to maintain restrictive policy settings for longer than previously expected.
What to watch next
- U.S. data flow: ADP employment, ISM Services PMI and the Fed's Beige Book.
- Geopolitical developments in the Middle East and related moves in oil markets.
- Domestic UK activity readings and inflationary signals tied to input costs.