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Pound Sterling Eases as Dollar Gains on Geopolitical Tensions and Fed Focus
The British pound declined against a broadly stronger U.S. dollar on Wednesday, as investors sought safety amid fresh geopolitical tensions and positioned for potentially hawkish signals from the Federal Reserve. The move came as a surge in oil prices and equity market jitters further bolstered the dollar's appeal.
As of 06:15 ET (10:15 GMT), the GBP/USD currency pair was down 0.07% to $1.3343. The euro also weakened, with EUR/USD slipping 0.08% to $1.1403.
Dollar Driven by Safe-Haven Bids
The dollar's strength was underpinned by a flight to safety following reports of new U.S. strikes on Iran and broader nervousness in stock markets. This risk-off sentiment was compounded by a sharp rise in energy costs, with Brent crude futures climbing nearly 6% to approach $79 a barrel.
"Equity jitters offered the dollar some support yesterday – a reminder of the greenback’s very strong safe-haven appeal," noted Francesco Pesole, an FX strategist at ING. He added that a shift to a softer dollar view would likely require weaker-than-expected U.S. economic data.
AdCentral Bank Divergence in Focus
Market participants are keenly awaiting the minutes from the Federal Reserve's June policy meeting, due later Wednesday. Expectations are for the details to confirm the central bank's hawkish stance, which could provide further momentum for the dollar. "The importance of the Fed’s hawkish shift in June for the dollar cannot be overstated," Pesole said.
While the pound has recently found support from rising expectations for a Bank of England interest rate hike—with markets now fully pricing in a 25-basis-point increase by year-end—this factor was overshadowed by the dollar's dominant trend. According to ING's analysis, futures markets are currently pricing in just 35 basis points of Fed rate cuts by December.