Sterling, euro ease amid Middle East tensions

GBP/USD dropped 0.07 per cent to $1.3343 and EUR/USD dipped 0.08 per cent to $1.1403

Sterling fell on Wednesday, while the euro also eased, as the dollar drew broad safe-haven demand after latest attacks in the Middle East and jitters in equity markets.

GBP/USD dropped 0.07 per cent to $1.3343 and EUR/USD dipped 0.08 per cent to $1.1403, with Brent crude up close to 6 per cent near $79 a barrel 10:15 GMT.

Equity jitters offered the dollar some support yesterday – a reminder of the greenback’s very strong safe-haven appeal, said Francesco Pesole, FX strategist at ING.

The importance of the Fed’s hawkish shift in June for the dollar cannot be overstated. Pesole said market conviction around further tightening relies heavily on the median dot plot signalling a hike and on new Fed Governor Kevin Warsh reaffirming a strong commitment to the inflation mandate.

Sterling has been supported by rising Bank of England rate-hike bets, markets now fully price a 25bp hike by year-end, up from 75 per cent probability.

For the euro, ECB speakers Nagel, Dolenc, Kocher and Moulin are due Wednesday, though ING expects “likely limited market impact.”

Marine Le Pen’s confirmation that she will contest France’s 2027 presidential election drew a muted market reaction, with 10-year OAT-Bund spreads holding near 80bp.

This court decision doesn’t change much for the euro considering markets are likely to be already pricing in an RN win in April, Pesole said, adding downside risks remain for EUR/USD, with a move below 1.140 still quite possible this week.

ING is not embedding a French political premium into its EUR forecasts for now but says risks stay tilted lower near-term.