Sterling and Euro Edge Lower as Dollar Holds Firm
Sterling and the euro both moved slightly lower on Tuesday, while the US dollar remained steady. Currency markets are currently balancing cautious optimism surrounding Middle East peace talks with rising uncertainty ahead of a crucial Federal Reserve leadership hearing.
As of 08:50 ET (12:50 GMT), GBP/USD declined 0.14% to 1.3510, while EUR/USD slipped 0.3% to 1.1758.
Middle East Developments Support Risk Sentiment
Market sentiment received modest support after reports suggested Iranian officials may travel to Pakistan for peace discussions with the United States. Investors are leaning toward a risk-on outlook, largely expecting the current ceasefire to be extended.
However, uncertainty persists as President Trump continues to signal a stark “deal or destruction” outcome ahead of the ceasefire deadline, keeping traders cautious despite the improving tone.
Focus Turns to Warsh Hearing
The main event for markets today is Kevin Warsh’s confirmation hearing before the Senate, scheduled for 1600 CET.
According to analysts at ING, markets broadly expect Warsh to adopt a dovish stance on interest rates while maintaining a hawkish view on the Federal Reserve’s balance sheet. Any comments that push short-term swap rates and real yields lower could weigh on the dollar.
ING strategist Chris Turner noted that market reactions may remain limited, as political hurdles could still block Warsh’s nomination from advancing. He also highlighted the possibility of the dollar index (DXY) drifting toward the 97.50–97.60 range.
Euro Holds Range Amid Strong Capital Inflows
The euro continues to trade within a narrow 1.1750–1.1800 range, supported by strong foreign investment. Data shows that overseas investors purchased €280 billion worth of eurozone assets during the first two months of the year.
Attention now shifts to the German ZEW investor sentiment survey and speeches from European Central Bank officials.
Markets are currently pricing in a 68% chance of an ECB rate hike in June. ING expects the ECB to proceed with tightening to reinforce its commitment to controlling inflation. A notably dovish tone from Warsh could push EUR/USD toward 1.1850.
Sterling Resilient Despite Political Noise
The British pound has remained relatively stable despite ongoing domestic political uncertainty. UK government bonds underperformed on Monday amid speculation over potential changes in Labour leadership, yet sterling held firm.
Markets are now watching parliamentary testimony from a senior civil servant linked to the Mandelson betting controversy. Prediction markets currently assign only a 39% probability to Prime Minister Keir Starmer leaving office by June, suggesting limited immediate political risk for the pound.
EUR/GBP is expected to find support in the 0.8685–0.8700 range.
Key US Data and Market Drivers Ahead
Investors are also monitoring upcoming US economic data, including March retail sales and the ADP weekly employment report. Any signs of weakness could add further pressure on the dollar.
Overall, currency markets will remain driven by developments from the Warsh hearing, geopolitical updates from the Middle East, and signals from ECB officials regarding the pace of monetary policy normalization.
