Investing.com — Sterling held near its strongest level of the week on Friday, trading little changed at 1.3420 as of 04:12 ET (08:12 GMT), as markets braced for a pivotal U.S. inflation print that could reset expectations for both Federal Reserve policy and the dollar’s near-term direction.
The pound has recovered sharply from Monday’s low of 1.3177, adding roughly 1.9% across the week as ceasefire optimism between the US and Iran lifted risk sentiment and dragged the to just below 99.
That weekly advance marks cable’s strongest five-day performance since late January, when briefly touched 1.3869.
Gains, however, look increasingly priced in. ING strategist Francesco Pesole cautioned that with a good deal of positives already reflected in currency markets, the bar for further dollar weakness is higher heading into today’s session.
The US CPI report for March, expected to show headline inflation jumping 0.9 percentage points to 3.4% year-on-year, is the session’s central risk event.
A significant upside surprise would make it harder to sustain bearish dollar positions, with markets currently pricing around 7 basis points of Fed easing by year-end.
Core CPI is seen rising only modestly, from 0.2% to 0.3% month-on-month, which analysts say is unlikely to shift Fed pricing materially on its own.
steadied at 1.1685, just below Thursday’s high of 1.1724, after closing April’s first full week up 0.82%.
ING sees the pair stabilising around or slightly below 1.1700, with ECB rate hike expectations, markets price close to 55 basis points of tightening by year-end, with June and September as preferred windows, continuing to underpin the euro against lower-yielding peers such as the yen and Swiss franc.
Sterling faces a softer relative outlook versus the euro. The Bank of England is seen as more likely to pivot dovish, particularly if energy prices ease further, with upcoming commentary from Governor Andrew Bailey in focus.
Geopolitics remains the primary driver across G10. The ceasefire is widely viewed as fragile, with ongoing Israeli activity in Lebanon creating friction in US-Iran negotiations.
Should a permanent deal materialise and Strait of Hormuz flows resume, ING sees scope for a further leg lower in the dollar, with the Australian dollar and Norwegian krone best positioned to benefit.