FX markets head into the weekend with relative policy divergence firmly back in focus. The Fed’s rate hike and hawkish projections have lifted US front-end yields and reinforced the dollar’s carry advantage, but the greenback has struggled to fully capitalise on that repricing. Sterling and the yen have been the clearest underperformers after their respective central-bank meetings failed to deliver enough to satisfy hawkish expectations, while the euro has held up better on the crosses despite remaining under pressure against the dollar. Softer oil prices have offered some relief to European currencies, but with US rates still elevated and risk sentiment cautious, the broader FX picture remains tilted towards selective dollar strength rather than a clean breakout.

FX markets are trading with a clear policy-divergence theme after the Federal Reserve delivered a more hawkish message than markets had expected. The dollar has pushed to a two-month high, EUR/USD has broken sharply lower and sterling enters today’s Bank of England decision on the defensive. Asian G10 currencies have recovered modestly this morning alongside firmer US equity futures, while the yen has shown some resilience ahead of tomorrow’s Bank of Japan meeting. With central banks moving at different speeds and energy prices continuing to influence the inflation outlook, interest-rate expectations remain firmly in the driving seat for major currency pairs.

FX markets head into a busy 24 hours with monetary policy firmly back in control. The dollar remains well supported after five consecutive gains, while sterling is trading cautiously following a largely uneventful UK inflation print and the euro continues to lose ground as higher energy costs, rising bond volatility and softer growth expectations weigh on sentiment. With the Fed decision tonight and the Bank of England following on Thursday, relative rate expectations are once again driving price action across the majors. Broader risk conditions also favour the dollar

FX markets face a pivotal week as the dollar, sterling and euro react to higher oil prices, rising bond yields and central bank expectations. We assess the outlook for USD, GBP and EUR ahead of key Federal Reserve and Bank of England decisions.

FX markets are opening the week with a sharper defensive tone. Sterling is holding firm on stronger UK growth and rising BoE expectations, while the dollar is strengthening, the euro is slipping and the yen remains vulnerable. Higher oil, rising bond yields and weaker equities are all pushing investors towards a more cautious stance.

A more defensive tone has taken hold across FX markets as surging oil prices, higher global bond yields and renewed policy tightening expectations reshape the outlook. Brent has risen roughly 10% this week to around $105, intensifying concerns that the US-Iran standoff could deliver a fresh inflation shock just as central banks were hoping price pressures were easing.

Rates markets have reacted sharply. Front-end yields have moved higher across major economies, while the US 10-year Treasury yield is again approaching 5%. Equity markets have weakened, volatility has picked up and higher-beta currencies, particularly in CEE and the antipodean bloc, have come under pressure. The dollar has regained its defensive appeal, sterling is drawing some support from stronger UK growth, while the euro is struggling to benefit from higher ECB rates as investors weigh tighter policy against the region's sensitivity to energy costs.

FX markets remain finely balanced, with higher oil prices, firmer global yields and shifting central bank expectations pulling currencies in different directions. Brent above $100 has revived inflation concerns and pushed bond yields higher, but the traditional relationship between rising US yields and a stronger dollar has weakened. Instead, yen strength, questions over US policy and the prospect of further tightening in Europe are keeping the major currencies relatively well supported against the greenback. With the ECB in focus today, UK growth data and US inflation figures due next, markets are entering a potentially decisive stretch for rate expectations across the US, UK and eurozone.

FX markets are balancing rising geopolitical risk, firmer oil prices and a resurgent yen, while the dollar struggles to gain traction. Attention now shifts to the ECB, where a fully priced 25bp hike could still move the euro if policymakers push back against aggressive tightening expectations. With US CPI also due on Friday, the stage is set for a potentially volatile end to the week.