Image copyright: World Economic Forum / Thibaut Bouvier.
Dollar ticks higher on hopes of a diplomatic de-escalation between EU and U.S. in Davos.
The midweek dollar recovery comes as currencies broadly retrace Tuesday’s losses amid hopes of a diplomatic de-escalation between the United States and the European Union.
Investors are positioning ahead of remarks from U.S. President Donald Trump, who is scheduled to address the World Economic Forum in Davos on Wednesday.
Markets are focused on whether Trump signals a so-called landing zone in his confrontation with the EU over Greenland and trade policy.
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“Markets actually expect him to try and de-escalate tensions with the EU over Greenland and Tariffs. That view is aiding the risk recovery and allowing the USD to recover some of Tuesday’s losses,” says Richard Pace, a Reuters market analyst.
The pound to dollar exchange rate (GBP/USD) pares recent gains as U.S. dollar strength re-emerges midweek.
GBP/USD rallied to a 24-hour high at 1.3498 before reversing lower, slipping back to around 1.3411 as buying interest fades.
The pullback presents a risk that a recent rally is fading and there is no transition to a fresh upward trend. Renewed U.S. dollar demand leaves GBP/USD vulnerable to a deeper retracement toward its 200-day exponential moving average near 1.3297.
A move to that level would place the pair below the March 2026 consensus forecast derived from more than 30 investment bank analysts, suggesting undervalued levels are being tested.
(More information on the consensus forecast of over 30 investment bank analysts can be found here).
Expectations for positive developments in Davos help stabilise broader risk sentiment, reducing demand for alternatives to the dollar and encouraging a partial unwind of earlier USD selling.
For sterling, the shift underscores how external political developments and dollar-side dynamics continue to dominate near-term direction in GBP/USD.
Unless the pound can reclaim and hold levels above the mid-1.34s, traders say risks remain skewed toward a test of longer-term support rather than a renewed push higher.
