Investing.com — Sterling and the euro surged on Wednesday as the dollar sold off sharply after Iran signalled the Strait of Hormuz could reopen and reports emerged that Washington and Tehran were closing in on a deal to end the Gulf war, triggering a broad risk rally and a steep slide in oil prices.
As of 08:25 ET (12:25 GMT), GBP/USD rose 0.42% to 1.3615, while EUR/USD gained 0.53% to 1.1755, with both moves reflecting broad dollar weakness rather than independent currency strength.
Iran’s Islamic Revolutionary Guard Corps navy said safe transit through the strait was possible following the neutralisation of “aggressor threats”, state media reported, hours after President Trump paused “Project Freedom” citing “great progress” toward a “complete and final agreement.”
Axios, citing two U.S. officials and two other sources briefed on the matter, subsequently reported the two sides are nearing a one-page memorandum of understanding that would see Iran commit to a moratorium on nuclear enrichment in exchange for U.S. sanctions relief and the release of frozen funds.
A Pakistani source involved in the talks confirmed the report to Reuters, saying, “We will close this very soon. We are getting close.”
The dollar’s path faces obstacles, however. Trump warned on Truth Social that bombing would resume “at a much higher level and intensity” if Iran rejected terms, and a permanent deal remains unsigned.
Near-term attention turns to the U.S. EIA weekly inventory data due at 1630 CET, where markets expect a 2.4 million barrel drawdown following last week’s 6.2 million fall; a sharper decline could quickly reverse the risk rally. April ADP employment figures are also due, with consensus at +120,000. ING sees DXY support at 97.65-97.75 potentially limiting losses.
The euro has underperformed on the crosses, with EUR/GBP and EUR/CHF reflecting two months of negative eurozone data surprises as elevated energy costs bite.
A modest bid from risk appetite and expectations the ECB will deliver a precautionary rate hike in June, with two-year inflation swaps at 3.03%, offer some support. ING said it did not see EUR/USD pushing convincingly above 1.18 and would not rule out a return toward 1.1700.
Sterling’s resilience is drawing attention as GBP/USD holds firm even as UK Gilt yields trade at multi-year highs ahead of Thursday’s local elections.
ING’s rates strategy team noted the UK swap spread has remained stable, suggesting the sell-off is not purely election-driven.
A strong result against Labour on Thursday could prompt a leadership challenge and introduce fresh political risk for both Gilts and the pound. EUR/GBP support at 0.8600-0.8610 is expected to hold.
