By Noam Bennaiche
The US dollar has continued to lose ground this week, extending a sustained period of weakness as improving diplomatic signals surrounding the Iran conflict erode the safe-haven premium that supported the greenback through March. The Dollar Index is hovering near 98, around six-week lows, as investors grow more optimistic about progress in US-Iran relations and unwind the risk premium built up since late February. President Donald Trump said the war was “very close to over” and that talks may resume soon.
On the policy side, the Federal Reserve is expected to keep rates unchanged this month and likely throughout the year, while, earlier this week, Chicago Fed President Austan Goolsbee warned that rate cuts could be delayed until 2027 if energy prices remain elevated. This combination of easing geopolitical risk and a Fed on hold leaves the dollar with limited near-term support.
The British pound has benefited from improved risk sentiment, trading near two-month highs around 1.3520 against the dollar as the greenback weakens. Against the euro, sterling remains broadly stable but below mid-March highs above 1.16, currently trading around 1.14-15. Some positive data has been released in the UK yesterday, notably UK GDP rose 0.5% last month, compared to expectations of 0.1%. UK CPI held at 3.0% in February, but the Bank of England has warned that inflation could rise to 3.0–3.5% in Q2–Q3 2026 due to higher energy costs linked to the Middle East conflict. With the next CPI release due on 22 April, markets will be watching closely for early signs of this pickup.
The euro has also gained slightly yesterday, with EUR/USD rising for an eighth consecutive session to near 1.1783, driven primarily by dollar weakness rather than strong eurozone fundamentals. The pair has recovered much of March’s losses, when Europe’s energy vulnerability weighed heavily on the currency. While markets still expect rate hikes from both the ECB and the Bank of England, expectations have been scaled back, with pricing now pointing to around two ECB hikes by year-end instead of the three or four previously expected.
With limited data releases today, markets remain driven by geopolitical developments. Focus now shifts to the UK CPI release on 22 April and upcoming Federal Reserve and Bank of England meetings. Any setback in Iran ceasefire talks or a renewed spike in oil prices could quickly reverse the dollar’s recent weakness and reignite inflation concerns in Europe.
Overall, the dollar remains biased to the downside as long as ceasefire optimism holds, while the pound and euro should retain support if diplomacy progresses and inflation data does not surprise sharply to the upside.
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