Investing.com — Sterling and the euro edged modestly higher on Friday as the dollar came under broad pressure, though risk sentiment remained fragile amid an escalating Gulf crisis and widening inflation concerns.
As of 08:31 ET (12:31 GMT), rose 0.16% to 1.3495, while gained 0.08% to 0.8680, though both pairs face meaningful headwinds into the weekend.
The dominant macro theme is the Strait of Hormuz closure. A week ago both Iran and the US were declaring the waterway open; today the US Navy’s blockade has it firmly shut, keeping elevated and pushing the stagflationary narrative firmly back into focus.
ING’s Chris Turner noted that short-dated yields remain firm on the view that central banks globally will be forced to react to the inflationary shock, keeping investors reluctant to run dollar-short positions into the weekend. is seen biased toward 99.15/20, with scope to fill a gap to 99.50 on any upside catalyst.
The euro is described by ING as “feeling heavy,” with Turner flagging that two-year EUR/USD real rate differentials are not supportive of the pair at current levels.
The ECB may well deliver a June rate hike, markets currently price a 67% probability, but that alone may not lift the currency, as the bank needs to get ahead of inflation expectations rather than merely match them.
Today’s German Ifo print is the key data event; consensus looks for the expectations component to dip to 85.5 from 86, with any break below 85 likely to act as a market mover. ING sees 1.1630 as the direction of travel for EUR/USD today.
Sterling found underlying support from a blowout UK retail sales print, with March sales rising 0.7% month-on-month against a 0.2% consensus forecast, the strongest monthly gain since January 2024.
The data materially reduces near-term recession risk and pushes back the timeline for Bank of England rate cuts, providing the pound with a fundamental cushion even as global risk appetite stays cautious.
With the Fed in its pre-meeting blackout period, the session’s remaining directional cues will come from the University of Michigan final sentiment reading, where any upward revision to the 3.4% provisional 5 to 10 year inflation expectations figure could add further fuel to dollar bulls, alongside any fresh Gulf developments.
