Middle East de-escalation hopes lift sterling and risk currencies
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• Dollar weakens broadly after Trump signals US withdrawal from Iran within two to three weeks, boosting risk appetite across G10
• Asian currencies lead the overnight rally – Korean won up 0.9% – with sterling also benefiting from the improved sentiment
• All eyes on Trump's Iran update at 9pm ET tonight, with key US data also in focus throughout the day
Recap
The dollar gave back ground for a second consecutive session as Trump indicated the US could exit Iran within two to three weeks, sparking a relief rally in risk-sensitive currencies. Risk sensitive currencies gained overnight, with sterling also finding support from the improved mood – though performance against European and commodity currencies was more mixed.
Today
Market rates
*Daily move - against G10 rates as of 5pm GMT on 31.03.26
** Indicative rates - interbank rates as of 5pm GMT on 31.03.26
Data points
Click here for a calendar of upcoming economic events Our thoughts
Today is all about US data and geopolitics. The PMI readings for the eurozone and UK are expected to confirm modest expansion and are unlikely to move the needle much for sterling or the euro.
The focus falls on the US. ADP employment is forecast to slow sharply to 40k from 63k – a miss here would add to dollar selling pressure and reinforce concerns about a cooling job market. Retail sales are expected to bounce 0.5% after February's contraction, providing a potential offset. The ISM Prices Paid component rising to 73.8 is worth watching – persistent input price inflation complicates the Fed's path and could limit how far the dollar falls even if the activity data disappoints.
The bigger driver today could come after hours. Trump is scheduled to provide an update on Iran at 9pm ET – any concrete move toward de-escalation would likely extend the dollar's recent weakness and support risk currencies including sterling. Watch GBPEUR for any divergence in UK versus eurozone manufacturing, which could offer near-term opportunities.
The near-term bias leans toward further dollar softness – but with geopolitical headlines still capable of sharp reversals, volatility remains the base case.
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