Dollar Rebounds, Pound Loses Support
Sterling fell on Thursday (May 28th), pressured by a stronger dollar after a US-Iran exchange of military strikes shattered remaining market optimism for a quick deal that could reopen the Strait of Hormuz. At 5:20 a.m. ET, GBP/USD fell 0.16% to 1.3405, while EUR/USD weakened more modestly, 0.09% to 1.1616.
The geopolitical landscape worsened after the US attacked military sites near Bandar Abbas, and the IRGC retaliated by targeting a US airbase, calling it a "serious warning." This escalation revived demand for the dollar as a safe haven, while also increasing pressure on riskier currencies, including the pound.
The dollar's strength is also no longer solely geopolitical. Hotter US inflation data in early May has changed market pricing for the Fed's interest rate direction, creating a "floor" for the dollar even during moments of optimism about a deal. Within this framework, the dollar's room for weakness is more limited, making the GBP more vulnerable when global sentiment changes.
Domestically in the UK, political risks are said to have eased, leaving sterling increasingly "exposed" to the external dollar narrative. At the same time, the Bank of England's disinflation path is considered complicated by persistently high oil prices since the conflict began, leaving the pound lacking structural support from both inflation fundamentals and policy.
The next focus is the US April PCE release on Thursday, which could potentially change the dollar's direction if it comes in lower than expected. The market is also awaiting the ECB meeting minutes and signals toward a June 11 interest rate hike, although the euro's reaction is expected to be limited as it is largely priced in. (Arl)*
Source: Newsmaker.id
