Sterling moved lower on Friday as a resilient dollar kept foreign exchange markets on edge, following reports of a tentative 60-day ceasefire extension between the U.S. and Iran that has yet to receive final approval from U.S. President Donald Trump and does not reopen the Strait of Hormuz.
As of 04:37 ET (08:37 GMT), GBP/USD was trading down 0.19% at 1.3421, while EUR/USD eased 0.10% to 1.1638.
The most notable feature of the session was the dollar's relative strength. Despite the ceasefire extension, ING strategist Francesco Pesole highlighted that the U.S. dollar index, DXY, remains about 1% higher than levels seen in early May. At the same time, Brent crude is trading roughly 4% below its May 7 low.
Pesole and ING's commentary framed the gap between softer oil prices and a firmer dollar as evidence that geopolitical relief alone may not be sufficient to unwind a hawkish floor under U.S. policy expectations. Markets continue to price in roughly 15 basis points of additional tightening by year-end, a trajectory that held firm even after Thursday's core personal consumption expenditures measure printed a marginally sub-consensus 0.2% month-on-month.
The PCE reading, while softer than some forecasts, was described as inadequate to materially alter Fed pricing. Pesole warned that if the Strait of Hormuz remains closed to commercial traffic for an extended period - even without fresh military escalation - DXY could drift back toward 99.50.
For the euro, the immediate domestic focus is on flash May German consumer price index data. France and Spain are both expected to show further acceleration in inflation, while Germany's headline rate is forecast to stall around 2.9%. ING's macro team flagged a meaningful upside risk that the German reading could be well above 3%.
ING noted that an upside surprise in German CPI would probably lend technical support to the euro by reinforcing a decline in short-term rate expectations. However, Pesole cautioned that for EUR/USD to sustain any move above 1.180 driven by Hormuz-related relief, markets would need to reprice the Federal Reserve toward a dovish stance - a shift that Thursday's PCE outcome did not produce.
The U.S. economic calendar is light for Friday, but several Federal Reserve speakers are scheduled to make comments, potentially reinforcing the hawkish tone that has supported the dollar over recent sessions.
Ultimately, ING sees the situation in the Gulf as the dominant variable for near-term FX moves. Confirmed evidence that the Strait of Hormuz has reopened to commercial shipping could spark a relief rally in EUR/USD of more than 1%. Conversely, signs that the reported ceasefire extension stalls without progress on reopening the strait would likely leave the dollar's floor intact and limit exchange-rate upside for the euro and pound.
Market context: Currency traders are balancing a reported diplomatic pause in hostilities with persistent U.S. monetary policy expectations. Key upcoming data and central bank commentary will be watched closely for any sign that rate outlooks are shifting.