Overview
Sterling slipped on Wednesday while the euro also eased, as investors sought the dollar’s safe-haven characteristics after renewed U.S. strikes on Iran and a general rise in equity market nervousness. Traders were additionally preparing for the publication of the Federal Reserve’s minutes from its June meeting later in the session.
Market moves
By 06:15 ET (10:15 GMT), GBP/USD had fallen 0.07% to $1.3343 and EUR/USD had edged down 0.08% to $1.1403. At the same time Brent crude was trading almost 6% higher, near $79 a barrel, following Washington’s action against Tehran.
Analysts noted that the combination of geopolitical escalation and equity volatility has reinforced demand for the dollar. Francesco Pesole, FX strategist at ING, said equity jitters provided the dollar with support and underlined the greenback’s strong safe-haven appeal.
Fed minutes and policy expectations
Market attention is on the Fed minutes from June, which ING expects will reinforce a hawkish message and consolidate dollar momentum. ING’s view is that while the minutes may firm up dollar strength, they are unlikely to prompt a dramatic break higher immediately.
Futures markets reflect expectations for only limited easing later in the year, with pricing implying roughly 35 basis points of cuts by December, a level reached after a softer U.S. jobs report. Pesole suggested that the dollar index may remain largely rangebound in the near term, though he flagged upside risk toward the 101.50-102.0 area.
Sterling drivers
Sterling has been underpinned recently by rising expectations for Bank of England rate hikes. Markets now fully price a 25 basis point increase by year-end, up from a prior 75% probability level. That dynamic has been further influenced by oil-driven inflation concerns following a high-profile declaration in Ankara that, in the speaker’s view, the Iran ceasefire is over.
Euro dynamics
For the euro, several European Central Bank speakers - Nagel, Dolenc, Kocher and Moulin - were scheduled to speak on Wednesday, although ING expects those appearances to have limited market impact. Political developments in France also registered little reaction: Marine Le Pen’s confirmation she will run in the 2027 presidential election coincided with 10-year OAT-Bund spreads remaining close to 80 basis points.
Pesole commented that the French court decision does not substantially alter the euro outlook given market expectations, and that downside risks remain for EUR/USD - with a decline below 1.140 considered quite possible within the week. ING is not, at present, building a French political premium into its euro forecasts, but it views risks as tilted to the downside in the near term.
What could change the dollar picture
ING indicated that a materially softer dollar view would likely require U.S. data that disappoints relative to expectations, or a dovish surprise in the Fed minutes. At present, ING regards such an outcome as unlikely.