Sterling extended gains for a second straight session, as the dollar retreated ahead of Wednesday's packed central bank calendar. The pound benefited from broad dollar weakness as traders positioned cautiously before the Federal Reserve's policy decision. Overnight, Asian currencies showed mixed performance with the yen strengthening on intervention concerns, while the dollar consolidated in a narrow range as investors awaited clarity on how central banks will navigate the conflicting pressures of elevated energy prices and inflation risks stemming from the ongoing Middle East conflict.
*Daily move - against G10 rates as of 17:00 GMT, 17.03.26
** Indicative rates - interbank rates as of 17:00 GMT, 17.03.26
Today's focus falls on the Federal Reserve and Bank of Canada announces policy decisions, with both widely expected to hold rates steady. The critical focus will be on how policymakers address the conflicting pressures of elevated energy prices from the Middle East conflict against their inflation mandates.
Looking ahead, the tone from today's Fed commentary could set the direction for G10 currencies, particularly if Chair Powell signals concern about energy-driven inflation persistence. With currency volatility remaining subdued on the surface, but traders loading up on protection against extreme moves, any hawkish surprises from the central banks could trigger sharp repositioning across FX markets.
Sterling faces a crucial test tomorrow when the Bank of England delivers its decision alongside the ECB, BoJ, and SNB.
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