Sterling Today: Pound subdued as dollar eyes hawkish Fed surprise

Sterling and the euro edged lower against the dollar on Wednesday as markets braced for the Federal Reserve’s rate decision, with Jerome Powell’s final press conference as Chair carrying meaningful hawkish risk given the absence of meaningful progress on a US-Iran deal and the Strait of Hormuz closure. 

A fresh bout of AI-driven jitters in US equities provided the dollar with some early support, though that recovery proved short-lived as month-end rebalancing flows again capped any sustained gains.

As of 08:41 ET (12:41 GMT), GBP/USD slipped 0.13% to 1.3502, within a day’s range of 1.3495-1.3528, while EUR/USD shed 0.13% to 1.1698, trading near the lower end of its 1.1694-1.1721 session band.

ING’s Francesco Pesole noted that in most USD pairs, global equities continue to carry the highest beta in ING’s short-term fair value models, meaning equity direction, not oil or rate differentials, remains the primary dollar swing factor. 

The Fed announcement at 19:00 BST is the day’s centrepiece. With higher fuel and airline prices pushing US CPI back toward 4%, the Fed is expected to frame the dynamic as a transitory supply shock rather than a demand-driven spiral, but Pesole cautioned that Powell could err on the hawkish side given stalled Gulf negotiations, and that any hawkish surprise would be amplified if it coincides with a hit to US equities. 

That test arrives almost simultaneously, with Alphabet, Microsoft, Amazon and Meta all reporting after the close.

On the geopolitical front, President Trump claimed Iran is in a "state of collapse" and seeks to reopen the Strait of Hormuz, while the Wall Street Journal reported that Trump has separately directed officials to prepare for an extended blockade, a contradictory backdrop that keeps oil well-supported and the dollar’s ceiling intact. 

The UAE’s announcement that it is leaving OPEC and OPEC+ adds a further layer of complexity to the commodity supply outlook.

For the euro, 1.1700 has solidified as the key psychological benchmark for FX sentiment on the Gulf. Pesole noted that a combination of a hawkish Fed, poor risk sentiment and continued Hormuz impasse could open the door to a decisive break below that level.

On the data side, flash CPI prints from Spain and Germany are due today, Spain’s headline is expected to tick up to 3.5% with core steady at 2.9%, and Germany’s to top 2.9%, though with market pricing already hawkish, the bar for these figures to materially shift the EUR curve is high. 

Thursday’s ECB meeting is expected to largely meet market expectations, after which the euro should revert to being driven primarily by risk sentiment and oil.

The Australian dollar is the day’s notable underperformer after March CPI came in slightly below consensus. Headline inflation jumped to 4.6% year-on-year against an expected 4.8%, with the trimmed mean at 0.8% QoQ versus the 0.9% forecast.