Dollar firms after peace deal optimism fades, sterling dips on UK political risk

The dollar found a bid in European trading Friday, reversing a modest overnight decline. Hopes for a quick Ukraine ceasefire faded after several European diplomats pushed back on the timeline laid out by the White House. A White House statement Thursday night described progress in talks but stopped short of confirming a formal framework. By Friday morning, the cautious tone from European capitals was enough to unwind the modest risk-on positions built in the previous session.

Sterling fell 0.4% to $1.2870, underperforming most G10 peers. A Guardian report said Starmer’s cabinet was split on financing a defense spending increase. Some ministers favor borrowing over cuts to other departments. Two London-based traders said the pound’s slide was exaggerated by month-end portfolio rebalancing, with hedge funds trimming GBP/USD long positions into the weekend. The UK calendar has no top-tier data until Wednesday’s CPI print, leaving politics as the main driver.

The euro slipped 0.2% to $1.0820, tracking the dollar move rather than any eurozone-specific catalyst. The single currency has traded in a $1.0780–$1.0890 range for the past week. Traders are waiting for the European Central Bank’s April meeting for the next directional signal.