Investing.com — Sterling edged higher on Friday while the euro also posted modest gains, as the dollar steadied following its recent recovery amid cautious risk sentiment and firm energy prices.
As of 04:48 ET (08:48 GMT), rose 0.02% to 1.3529, while gained 0.08% to 1.1791, with the single currency continuing to hover near recent highs.
The dollar recovered modest ground as crude prices rebounded, with analysts noting that persistent geopolitical uncertainty in the Middle East continues to lend support to energy markets.
Despite some tentative signs of de-escalation, a lack of clear progress has left markets unconvinced, limiting the case for a sustained decline in the dollar or a decisive breakout higher in EUR/USD.
According to analysts at ING Group, recent FX moves continue to be shaped by the interaction between resilient equity markets and elevated oil prices, driving divergence within G10 currencies.
Oil-linked currencies such as the Norwegian krone and Canadian dollar have outperformed, supported by the stronger energy backdrop.
The dollar’s recovery also reflects a cautious reassessment of risk positioning, with markets reluctant to extend bearish bets amid lingering geopolitical risks and relatively stable U.S. rate expectations.
While equities remain resilient, analysts highlighted that oil price volatility remains a key variable, limiting downside in the greenback.
In Europe, the euro has struggled to extend gains beyond the 1.180 level, with ING maintaining a cautious stance on chasing further upside without greater clarity on geopolitical developments.
The brokerage now expects the European Central Bank to deliver a rate hike in June, followed by a prolonged pause, reflecting a balanced but uncertain macro environment.
Sterling, meanwhile, remained under pressure amid renewed political uncertainty in the UK. Reports surrounding government decisions on senior appointments have reignited concerns over Prime Minister Keir Starmer’s leadership stability, particularly ahead of upcoming local elections. ‘
Analysts noted that the pound continues to be highly sensitive to domestic political developments, reinforcing a cautious near-term outlook.
Since there is a relatively light economic calendar ahead, currency markets will likely continue to be driven by shifts in global risk sentiment, oil price dynamics, and central bank expectations.
Moreover, upcoming Federal Reserve developments, including Kevin Warsh’s hearing, could influence rate expectations and the dollar’s near-term direction.