Investing.com — Sterling and the euro edged lower on Thursday, giving back earlier gains as the dollar found support following a reassessment of recent risk sentiment.
As of 08:48 ET (12:48 GMT), edged down 0.14% to 1.3548, while slipped 0.16% to 1.1782.
Official GDP data showed the UK economy expanded by 0.5% in February, well above expectations for a 0.1% increase and following an upwardly revised 0.1% gain in January.
The growth was broad-based, with services activity rising 0.5% month-on-month, industrial production also increasing 0.5%, and construction output jumping 1.0% despite unseasonably wet weather.
Despite the stronger-than-expected data, the pound failed to gain sustained support as investors focused on the broader macro outlook.
The dollar found renewed support as markets grew more cautious about extending recent risk-on positioning, despite ongoing expectations of de-escalation in the Middle East.
While improved sentiment has weighed on the greenback in recent sessions, analysts caution that the underlying conditions for a sustained dollar decline are not yet firmly in place.
According to analysts at ING Group, the recent dollar weakness has been largely driven by a rotation into risk assets rather than a material shift in fundamentals.
They note that U.S. interest rates remain stable and there is little evidence of foreign investors reducing exposure to U.S. assets, limiting the case for a deeper dollar sell-off.
ING also highlighted that the Federal Reserve appears comfortable maintaining its current policy stance, with steady growth and a resilient labour market suggesting that expectations for near-term easing may be premature.
In the UK, the stronger GDP print was treated with caution by analysts, who argue that early-year growth has repeatedly been distorted by seasonal effects and may not reflect underlying momentum.
Rising energy prices, weakening real incomes and a softer labour market are expected to weigh on activity in the coming months, reinforcing expectations that the Bank of England is likely to remain on hold.
In Europe, the euro remained close to recent highs but showed signs of losing momentum after its sharp recovery from March lows.
While markets continue to price in further tightening from the European Central Bank, ING cautioned that EUR/USD may struggle to extend gains, with risks tilted toward a near-term pullback.
With limited top-tier economic data releases scheduled, currency markets are likely to remain driven by shifts in global risk appetite and central bank expectations, with recent price action suggesting investors are becoming more cautious about pushing the dollar materially lower from current levels.
