Sterling logged a small uptick against the US dollar on Tuesday but showed little sign of escaping broader downward pressure linked to a strong dollar and elevated oil prices, as traders absorbed shifting central bank expectations and persistent energy market risks.
At 08:56 ET (12:56 GMT), GBP/USD was quoted at 1.3541, up 0.04%. EUR/USD traded at 1.1691, a 0.01% decline, remaining broadly aligned with intraday ranges.
The prevailing tone across G10 currencies continues to reflect the interaction of central bank policy divergence and energy price movements. In Australia, the Reserve Bank raised its policy rate by 25 basis points to 4.35% - its third increase in the current tightening cycle - citing the emergence of second-round inflation effects. That decision feeds into a wider pattern in which currencies linked to hawkish monetary stances and commodity export exposure have tended to outperform.
Since the escalation of tensions in the Gulf in early March, commodity-linked currencies such as the Australian dollar and the Norwegian krone have outperformed, while currencies of energy-importing economies with comparatively dovish policy settings - including Japan and Sweden - have lagged as higher import costs weigh on their terms of trade.
The US dollar has received renewed backing from a recalibration of Federal Reserve expectations. Following last week’s hawkish Federal Open Market Committee meeting and persistently high energy prices, markets have moved to price in roughly 6-7 basis points of additional Fed tightening this year, shifting away from a prior narrative that had expected easing to be pushed further out.
Attention now centers on how the Fed will balance its dual mandate of inflation and employment. This week’s US labour market releases - including the JOLTS survey, ADP private payrolls and Friday’s nonfarm payrolls - are viewed as pivotal. The market consensus noted in pricing suggests that even a softer-than-expected payrolls report might not materially alter expectations for further tightening in the near term, given the recent volatility in data.
Energy markets remain a central determinant of FX direction. In the absence of substantive de-escalation in the Gulf, elevated oil prices are expected to sustain support for short-dated US yields and, by extension, the dollar.
Under these conditions, ING projects the dollar index to drift back toward the 99.00-99.50 range in the near term.
Risks to the euro are increasingly weighted to the downside. While a EUR/USD rate around 1.17 is still regarded as a reasonable fair-value anchor under current assumptions, there is growing concern that natural gas markets could be underpricing the risk of a supply disruption tied to Persian Gulf dynamics. A renewed surge in gas prices would amount to a second energy shock for the eurozone, further impairing its terms of trade and exerting downward pressure on the single currency. Near-term market attention is expected to focus on oil as the primary driver, with downside risks for EUR/USD leaning toward the 1.1630-1.1650 area.
Sterling’s immediate outlook similarly appears constrained. Although GBP/USD displayed modest resilience on the day, its path remains dominated by external forces - in particular dollar strength and the influence of energy prices. Cross flows in EUR/GBP are being closely watched as the Bank of England contends with the trade-off between persistent inflation and slowing growth, leaving the pound with limited independent momentum in the current market environment.
Key data points and central bank signals, alongside ongoing developments in energy markets, will likely continue to shape FX moves in the coming days. For now, sterling’s modest intraday gains remain fragile in the face of a broadly supported dollar and elevated commodity prices that favour currencies of commodity exporters.