The pound sterling climbed to around 1.3535 against the US dollar on Tuesday, its strongest level in six weeks, as signs of possible renewed talks between Washington and Tehran boosted risk appetite and pressured the greenback.
Reports that US and Iranian delegations could reconvene in Islamabad later this week, after an inconclusive first round of talks, prompted traders to rotate into risk-sensitive assets and out of the US currency. The US side, led by Vice President Vance, has so far held firm on demands over Iran’s nuclear programme and the reopening of the Strait of Hormuz, according to Reuters.
Global risk sentiment lifts, dollar index at six-week low
Improved sentiment rippled through global markets. S&P 500 futures extended gains to about 6,900 in overnight trade, while the US dollar index fell to roughly 98.00, its lowest level in more than a month and a half. The index is now down about 2.5% for the year, a sharp reversal from its strength late last year, easing global financial conditions.
A currency heat map showed the British pound outperforming major peers. The dollar weakened by around 0.22% against sterling and posted similar declines versus a basket of other currencies. The New Zealand dollar advanced about 0.44% against the greenback, while the Australian dollar added roughly 0.13%.
This softer dollar backdrop is encouraging renewed demand for higher-yielding and growth-oriented assets. Data from EPFR Global showed that technology-focused equity funds recorded their largest net inflows since January last week, attracting more than $4.2 billion.
Focus on Bailey speech and UK growth data
Domestically, attention is turning to the Bank of England. Governor Andrew Bailey is due to speak later on Tuesday at Columbia University, with traders looking for clues on the timing and direction of future interest rate moves following recent signs of moderate UK growth.
His remarks are seen as a key event risk for anyone holding sterling positions. A more upbeat assessment of the UK outlook or any hint of a slower pace of easing could reinforce the pound’s recent gains.
In parallel, UK monthly gross domestic product figures for February, due on Thursday, will provide a clearer read on whether the economy is sustaining momentum into the first quarter. A solid GDP print would likely strengthen the case for the Bank of England to hold its current policy stance for longer, adding another potential tailwind for sterling.
US producer prices in focus for dollar outlook
Across the Atlantic, the immediate focus is the March US Producer Price Index, due at 12:30 GMT. The data will help shape expectations for the Federal Reserve’s next policy steps by offering an updated signal on underlying inflation pressures.
Economists surveyed by Bloomberg forecast a month-on-month PPI rise of about 0.3%. Any meaningful deviation from that consensus could quickly stir volatility across currencies and rates markets. A softer-than-expected reading would likely deepen existing dollar weakness and support further gains in assets priced against the greenback, including sterling.
With diplomatic developments in the Middle East, central bank communications, and key data releases converging this week, currency markets face a dense calendar that could set the tone for sterling–dollar trading in the near term.
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