Euro Slips Against Dollar on Energy and Spread Pressure

Key Moments

Headline FX Levels

Stronger Dollar and Middle East Risks Support Safe-Haven Demand

The Pound came under renewed selling pressure against the U.S. Dollar after fresh UK growth figures disappointed, extending support for a firm USD backdrop. The U.S. currency remained broadly underpinned as investors continued to track sharp moves in energy markets alongside ongoing geopolitical risks in the Middle East.

Recent trading sessions have been marked by notable swings in the Dollar as markets reacted to evolving headlines linked to the US-Israel conflict with Iran. While US President Donald Trump has sought to reassure investors by stating the war could end “very soon”, conditions on the ground have continued to intensify, keeping risk appetite fragile.

Energy markets have mirrored this uncertainty. Repeated attacks on energy infrastructure in the region have pushed oil prices higher, though efforts to stabilize conditions have contained the most extreme price spikes. The International Energy Agency signaled that member countries are prepared to deploy strategic oil reserves to counter supply disruptions and limit further price surges.

Despite these measures, traders remain alert to the possibility of fresh shocks to global energy supply. This ongoing risk has maintained demand for perceived safe-haven assets such as the U.S. Dollar.

UK GDP Stalls, Undercutting Sterling

The Pound (GBP) weakened following the release of the latest UK gross domestic product data, which indicated that the economy stalled at the start of the year. Official figures showed that output in January was unchanged on a month-on-month basis, following a 0.1% increase in December. Markets had expected a 0.2% gain, so the flat reading reinforced concerns that the UK economy is stuck in a subdued growth phase.

This weaker-than-expected performance weighed on sentiment toward Sterling and contributed to a drop in the Pound against the stronger U.S. Dollar. The move left GBP/USD trading at 1.32661, down 0.64%.

At the same time, the sharp rise in global energy prices continues to complicate the policy outlook for the Bank of England. Elevated energy costs threaten to restrain growth while simultaneously intensifying inflation pressures, leaving policymakers facing a challenging trade-off.

The combination of soft growth data and ongoing inflation risks has made the Pound more sensitive to swings in global risk appetite, particularly against the backdrop of a supported U.S. Dollar.

Outlook for GBP/USD: U.S. Inflation and Data in the Spotlight

In the near term, upcoming U.S. macroeconomic releases are expected to be key drivers of the Pound to Dollar exchange rate. Market participants will pay close attention to the latest reading of the core PCE price index, the Federal Reserve’s preferred inflation gauge.

If the core PCE data indicate that inflation remains high, expectations that U.S. interest rates will remain elevated for an extended period could further underpin the Dollar. Additional support may stem from a projected rebound in durable goods orders and an anticipated increase in job openings.

However, forecasts point to a deterioration in consumer sentiment, which could curb the extent of any further upside in the U.S. currency.

Alongside the data calendar, developments in the Middle East remain a critical source of uncertainty for global markets. Any renewed escalation or, conversely, signs of diplomatic progress have the potential to quickly shift risk appetite and drive fresh moves in GBP/USD.