Investing.com — Sterling remained under pressure despite ticking higher against the dollar on Tuesday, while the euro held near recent highs, as markets digested an increasingly hawkish global central bank backdrop and persistent energy-driven support for the greenback.
As of 08:56 ET (12:56 GMT), rose 0.04% to 1.3541, while slipped 0.01% to 1.1691, broadly in line with prevailing intraday levels.
The tone across G10 FX continues to be driven by central bank divergence and energy dynamics. The Reserve Bank of Australia raised rates by 25 basis points to 4.35%, marking its third hike in the current tightening cycle and citing the emergence of second-round inflation effects.
This reinforces a broader pattern: currencies backed by hawkish central banks and commodity export exposure, such as the Australian dollar and Norwegian krone, have outperformed since the escalation of Gulf tensions in early March, while energy-importing economies with more dovish policy stances, including Japan and Sweden, have lagged as higher import costs weigh on their terms of trade.
The dollar is drawing renewed support from a repricing of Federal Reserve expectations. Following last week’s hawkish FOMC meeting and still-elevated energy prices, markets have shifted to pricing around 6-7 basis points of additional Fed tightening this year, a notable move away from the delayed-easing narrative seen previously.
The key debate now centers on how the Fed balances its dual mandate of inflation and employment. This week’s labour market data, JOLTS, ADP, and Friday’s nonfarm payrolls, will be pivotal, although even a weaker payrolls print may not be sufficient to derail tightening expectations given recent data volatility.
Energy markets remain central to the FX outlook. In the absence of meaningful progress toward de-escalation in the Gulf, elevated are likely to keep short-dated US yields and the dollar supported.
Under this backdrop, ING expects the to drift back toward the 99.00–99.50 range in the near term.
For the euro, risks are increasingly skewed to the downside. While 1.17 remains a reasonable fair-value anchor for EUR/USD under current assumptions, there is growing concern that may be underpricing the risk of supply disruption in the Persian Gulf.
A renewed rise in gas prices would represent a second energy shock for the eurozone, further worsening its terms of trade and weighing on the currency. In the near term, oil is expected to remain the primary driver, with risks tilted toward the 1.1630-1.1650 area.
Sterling’s outlook remains similarly constrained. While GBP/USD has shown modest resilience on the day, its direction continues to be dominated by external drivers, particularly dollar strength and energy price dynamics.
Cross flows in remain in focus as the Bank of England navigates the trade-off between persistent inflation and slowing growth, leaving the pound with limited independent momentum in the current environment.
