Overview
Sterling and the euro edged down against the dollar on Wednesday as markets positioned for the Federal Reserve's policy announcement and Jerome Powell's final press conference as Fed Chair. The day featured a mix of short-lived risk aversion in US equities, routine month-end rebalancing flows and fresh geopolitical headlines that together constrained any clear directional move in foreign exchange markets.
Market moves and intraday flows
At 08:41 ET (12:41 GMT), GBP/USD was quoted at 1.3502, a decline of 0.13% on the day and trading within a session range of 1.3495 to 1.3528. EUR/USD fell 0.13% to 1.1698, trading near the lower end of its intraday band of 1.1694 to 1.1721. Early in the session, AI-related jitters in US technology stocks produced some upward pressure on the dollar, but that impulse faded as month-end rebalancing flows resumed and capped any sustained gains.
ING's Francesco Pesole observed that, in most dollar pairs, global equities continue to carry the highest beta in ING's short-term fair value models. In other words, equity direction remains the dominant driver of dollar moves in the near term - more so than oil or interest rate differentials.
Federal Reserve focus
The Fed's decision, scheduled for 19:00 BST, is the focal point for markets. With US headline inflation nudged back toward 4% by higher fuel and airline prices, the expectation is that the Fed will characterise the push higher in consumer prices as a transitory supply-shock rather than a demand-driven wage-price spiral. Pesole warned, however, that Powell could adopt a hawkish tone given stalled negotiations between the US and Iran, and that any hawkish surprise would be amplified if it coincides with a hit to US equity prices. That intersection could be tested almost immediately - Alphabet, Microsoft, Amazon and Meta are all due to report earnings after the US market close.
Geopolitical and commodity considerations
Geopolitical developments added to market uncertainty. President Trump stated that Iran was in a "state of collapse" and sought to reopen the Strait of Hormuz. The Wall Street Journal reported separately that Trump has directed officials to prepare for an extended blockade of the waterway - a set of statements that appears contradictory and that leaves oil prices well supported and the dollar's upside capped.
The UAE's announcement that it is leaving OPEC and OPEC+ introduces another layer of complexity to the global supply outlook for oil and related commodity markets. These developments underpin a cautious tone in FX markets, particularly for currencies sensitive to energy price moves.
Euro outlook and incoming data
For the euro, the 1.1700 level has emerged as a key psychological threshold in FX sentiment around Gulf developments. Pesole noted that a combination of a hawkish Fed, deteriorating risk sentiment and a continued impasse over the Strait of Hormuz could create the conditions for a more decisive break below that mark.
Flash consumer price index readings from Spain and Germany are due later in the day. Spain's headline CPI is expected to rise to 3.5% year-on-year while core is projected to remain at 2.9%. Germany's flash headline is expected to top 2.9%. Given that market pricing already leans hawkish, these prints would need to be markedly different from expectations to materially alter euro area rate expectations.
Markets view Thursday's European Central Bank meeting as likely to meet consensus expectations, after which euro performance will likely be again driven by broader risk sentiment and movements in oil.
Australian dollar and RBA considerations
The Australian dollar underperformed on the day after March CPI prints disappointed slightly relative to consensus. Headline inflation rose to 4.6% year-on-year, below the expected 4.8%, while the trimmed mean recorded 0.8% quarter-on-quarter versus a forecast of 0.9%. Pesole suggested that the AUD's pullback reflects stretched market positioning rather than a substantive repricing of Reserve Bank of Australia expectations. Markets still price about 18 basis points of tightening ahead of next week's RBA meeting. Dip-buying around the 0.700 level is expected to remain a feature unless risk sentiment deteriorates sharply following the tech earnings and the FOMC decision.
Sterling's near-term path
Sterling's immediate trajectory remains tethered to the broader dollar and global risk backdrop, with no imminent Bank of England catalyst on the calendar. The persistence of month-end flows continues to muddy directional signals, and market participants will likely look for cleaner positioning and clearer guidance from Powell's remarks to provide a more reliable directional steer for GBP/USD beginning on Thursday.
Implications for markets and sectors
Currency markets, global equities - and energy-sensitive sectors such as oil and airlines - remain most directly affected by the constellation of central bank communication, corporate earnings and geopolitical headlines cited above. The interplay between risk sentiment and commodity price support is likely to remain a defining theme in the near term.