Pound Sterling Weakens as Geopolitical Tensions and Fed Outlook Boost Dollar Demand

The British pound fell against the U.S. dollar on Wednesday, pressured by broad-based demand for the greenback amid geopolitical concerns and anticipation of hawkish signals from the Federal Reserve. The euro also eased as investors favored the dollar as a safe-haven asset.

As of 06:15 ET, the pound was down 0.07% at $1.3343, while the euro slipped 0.08% to $1.1403, according to Investing.com data. The dollar's strength was underpinned by a sharp rise in oil prices and nervousness in equity markets.

Dollar Gains on Safe-Haven Bids

Demand for the dollar was fueled by fresh U.S. strikes on Iran, which sent Brent crude prices surging nearly 6% to near $79 a barrel. The move heightened geopolitical risk and stoked inflation concerns, drawing investors to the relative safety of the U.S. currency.

"Equity jitters offered the dollar some support yesterday – a reminder of the greenback’s very strong safe-haven appeal," said Francesco Pesole, an FX strategist at ING, in a note. He added that a move toward a softer dollar would likely require weaker-than-expected U.S. data or a dovish surprise from the central bank.

Fed Minutes in Focus

Ad

Investors are closely watching for the release of the minutes from the Federal Reserve's June meeting later today. The market is positioned for a hawkish tone that could reinforce the central bank's commitment to its inflation mandate and support further dollar strength.

ING expects the minutes to "cement the hawkish message and firm up dollar momentum," Pesole noted. He highlighted that the market's conviction for further tightening relies on the Fed's median "dot plot" projections. Currently, futures markets are pricing in just 35 basis points of interest rate cuts by December.

Sterling and Euro Face Headwinds

For sterling, the dollar's rally overshadowed rising expectations for a Bank of England rate hike. Markets are now fully pricing in a 25-basis-point hike by the end of the year, driven by inflation concerns linked to energy prices.

In the Eurozone, a slate of European Central Bank speakers was not expected to significantly impact the market, according to ING. The firm also noted that a confirmation from Marine Le Pen that she will contest France's 2027 presidential election drew a muted reaction, though downside risks remain for the EUR/USD, with a potential move below $1.140 still possible this week.