Dollar softens as Iran tensions ease, boosting risk appetite. Key US data ahead could shape FX markets and near-term direction for sterling.
Key Highlight
- The US dollar has come under pressure after signals that the US may step back from tensions with Iran, lifting overall market sentiment
- Risk-sensitive currencies are leading gains, particularly across Asia, with sterling also supported by the improved backdrop
- Markets are on alert for further geopolitical updates later today, alongside a busy schedule of US economic data
Market Recap
The dollar extended its decline for a second straight session, driven by a shift in geopolitical tone after indications the US could withdraw from Iran in the coming weeks. This has encouraged a move back into risk assets, supporting higher-yielding and growth-linked currencies.
Sterling has benefitted from this more positive environment, although its performance has been less consistent when compared to European and commodity-linked peers, highlighting some underlying caution in the market.
Market Update
Today’s focus is split between economic data and geopolitics, with the US firmly in the spotlight.
In Europe, PMI figures from both the UK and eurozone are expected to show modest growth. However, these releases are unlikely to be strong enough to significantly shift direction for either sterling or the euro.
Attention instead turns to the US, where several key indicators could shape near-term dollar direction. The ADP employment report is expected to show a notable slowdown in job creation. Any downside surprise would reinforce concerns around a softening labour market and could add further pressure on the dollar.
Retail sales are forecast to recover, which may provide some balance, while inflation signals within the ISM data remain important. Persistently high input costs could complicate expectations around Federal Reserve policy and prevent a deeper dollar sell-off.
Geopolitical developments remain the biggest potential market driver. An update expected later today on US-Iran relations could influence sentiment significantly. Any clear signs of de-escalation would likely support risk appetite further, benefiting currencies such as sterling.
In the near term, the bias leans towards continued dollar weakness. However, with geopolitical uncertainty still in play, markets should be prepared for sudden shifts in direction and elevated volatility.
1st April 2026
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