Investing.com — Sterling held just below $1.34 and the euro hovered near $1.16 on Tuesday, with both currencies pulling back slightly from Monday’s highs as the dollar staged a broad recovery despite sharply lower oil prices.
As of 08:30 ET (12:30 GMT), traded 0.08% lower at 1.3411, while edged up 0.05% to 1.1595.
The dollar’s resilience came even as oil extended its sell-off following the preliminary US-Iran ceasefire agreement.
ING’s Francesco Pesole noted that “the first 36 hours of trading after the US-Iran deal point to a structurally stronger dollar than a few weeks ago,” with nearly all weekend losses already reversed.
He added that FX markets are “shifting focus away from and back to central banks,” with tightening expectations now driven more by data and Fed communication than energy prices.
Wednesday’s FOMC meeting looms large, with new Fed Chair Kevin Warsh facing pressure to signal that rate hikes remain a real possibility. Pesole said the dollar “needs a nod from policymakers” to stay resilient, pointing to Australia as a cautionary example: the RBA delivered a hawkish hold but failed to convince markets, with coming under pressure regardless.
For the euro, Pesole described the pair’s footing as a “very unstable floor,” noting EUR/USD has round-tripped back to Friday’s levels.
The 2-year EUR:USD swap differential continues to widen, and ING flagged that “some downside risks remain,” with EUR/USD potentially exploring sub-1.150 levels on any fresh doubts about the deal’s durability or delays to the Strait of Hormuz reopening.
On sterling, the Bank of England’s Thursday meeting is widely expected to result in a hold at 3.75% in a divided vote, as officials weigh sticky inflation against a weakening labour market. Traders now see just one more hike this year, not fully priced until December.
Thursday’s Makerfield by-election also remains a watchpoint, with a win for Andy Burnham seen as a potential trigger for a Labour leadership contest that could weigh on the pound.