US Dollar Falls to 11 Week Low as UK Inflation and Fed Minutes Take Centre Stage

Key Highlight

• The US dollar has continued to lose ground, falling for a third consecutive session to an 11-week low. With markets increasingly reducing expectations for further Federal Reserve tightening, Wednesday’s Fed minutes will be closely watched for clues on the future direction of US interest rates.

• Geopolitical risks remain an important backdrop. The US Iran ceasefire expires today with no renewal currently in sight, while Israeli strikes on Lebanon over the weekend were the deadliest since the June ceasefire. Renewed attacks around the Strait of Hormuz are also keeping oil prices elevated near $89 a barrel.

• The focus then shifts to Wednesday, when UK inflation, the US Canada tariff deadline and the latest Fed minutes all arrive within a 48-hour period. UK CPI is expected to rise to 2.9% in July. A stronger than expected figure could increase pressure on the Bank of England to consider further rate increases and provide support for sterling.

Market Recap

The softer US economic data at the end of last week, particularly weaker retail sales and consumer confidence, encouraged markets to scale back expectations for further Fed tightening. This contributed to another decline in the dollar, taking it to its lowest level in 11 weeks.

The Australian and New Zealand dollars were among the strongest G10 currencies against sterling overnight as broader risk sentiment improved and the US dollar weakened.

The Japanese yen and Swiss franc also gained some ground. Japan’s 10-year government bond yield reached its highest level since 1996, keeping expectations of further Bank of Japan tightening alive. The Swiss franc benefited from demand for traditional safe haven currencies as Middle East tensions remained elevated.

Oil remains a key market influence. Continued uncertainty around the US Iran ceasefire, new sanctions and renewed vessel attacks in the Strait of Hormuz have helped keep prices close to $89 a barrel. A sustained disruption to energy supplies could have wider implications for inflation and interest rate expectations.

Market Overview

This is a particularly important week for currency markets, with several major catalysts arriving at the same time. The combination of UK inflation, the US Canada tariff deadline and the Fed minutes could create increased volatility for both sterling and the dollar.

Euro vs Dollar

Near term: 55% conviction, mildly higher.

EUR/USD has continued to recover from its one month low and is now approaching an important resistance area. The Fed minutes will be the main catalyst. A dovish message could give the euro enough momentum to move higher, while a more hawkish tone could limit the recovery.

The main risk to the dollar weakness narrative remains a further deterioration in the Middle East. Any significant escalation could increase demand for the dollar as a safe haven.

Medium term: 60% conviction, euro strength.

The medium-term outlook remains gradually positive for the euro. Expectations of a September ECB rate increase, combined with the possibility of the Fed remaining on hold through 2026, continue to support the single currency. A renewed acceleration in US inflation would challenge this view.

For a €250,000 transaction, a move above resistance could make the purchase approximately $994 more expensive for dollar buyers. A move down towards support could increase the cost by around $5,295, with the opposite impact for sellers.

Pound vs Dollar

Near term: 55% conviction, mildly higher, but momentum is fading.

Sterling remains towards the upper end of its recent range, although it needs a fresh catalyst to establish a stronger breakout. Wednesday’s UK inflation figures and the Fed minutes will be particularly important.

Higher gilt yields linked to elevated oil prices are providing some support for sterling, although the economic implications of prolonged disruption around the Strait of Hormuz remain a concern.

Medium term: 60% conviction, gradual pound strength.

The broader outlook continues to favour sterling against the dollar, largely because of the current dollar weakness trend and expectations that the Bank of England will provide a floor under UK interest rates.

However, the UK economy remains vulnerable to higher energy costs. Treasury modelling reportedly suggests UK growth could be just 0.9% in 2026 and 0.3% in 2027 if disruption around the Strait of Hormuz persists throughout the year.

For a £250,000 transaction, a move above resistance could reduce the cost to dollar buyers by approximately £406. A move towards support could increase the cost by around £4,950, with the reverse applying to sellers.

Pound vs Euro

Near term: 45% conviction, slight euro strength.

GBP/EUR remains broadly range-bound, with little clear direction from recent price action. Sterling’s relatively high valuation remains a headwind, while Wednesday’s UK inflation release could provide the catalyst needed to push the pair out of its current range.

Medium term: 30% conviction, euro strength.

The longer-term bias remains towards gradual euro strength as expectations of further ECB rate increases could narrow the interest rate gap with the UK. Closer UK EU trade relations remain a potential supportive factor for sterling.

For a £250,000 transaction, a move above resistance could reduce the cost for euro buyers by approximately £2,500. A move towards support could increase the cost by around £1,581, with the opposite applying to sellers.

Other Currencies to Watch

GBPCAD could be particularly sensitive to Wednesday’s US Canada tariff deadline.

GBPAUD and GBPNZD are benefiting from the broader improvement in risk appetite, although both remain vulnerable to renewed Middle East escalation.

GBPNOK remains supported by elevated oil prices as markets approach the US Iran ceasefire expiry. The Swedish krona is also worth watching alongside the Norwegian krone.

Bottom Line

Geopolitical developments remain the immediate risk, particularly as the US Iran ceasefire expires and tensions around the Strait of Hormuz continue to support oil prices.

However, Wednesday is likely to be the defining point for currency markets this week. UK inflation, the US Canada tariff deadline and the Fed minutes all arrive within a short window and could determine whether the recent dollar weakness continues, while also setting the direction for sterling into the end of August.

17th August  2026

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