Forex▲ Bullish
Pound Rallies as Dollar Fades on Oil Rally, Fed Outlook
Brent near highs, dollar index falls as markets price peak inflation. Pound best G10 performer on Burnham's fiscal stance, BoE hike bets. USDJPY range-bound after Katayama GPIF move.
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The dollar index is falling even as Brent crude trades near its monthly highs. Investors are not buying the greenback as a safe haven despite the escalation in the Middle East. Some traders said the market sees President Trump's threats as part of a negotiating strategy, not a path to a wider conflict.
Earlier in 2026, the dollar rallied when the oil price surge fed inflation expectations and raised the probability of a Fed rate hike. That reversed in April when Brent failed to reclaim its March highs. The same pattern is repeating this month. Consumer and producer prices fell month-on-month, leading economists to conclude that inflation peaked in May. If that is correct, the Fed has no reason to tighten further. The dollar dropped.
Sterling is the biggest beneficiary among G10 currencies, traders said. The pound has been the best performer over the past month, driven by the reduction in political risk. Incoming Prime Minister Andy Burnham is expected to stick to fiscal consolidation, and rumours that he will appoint a cautious chancellor have pushed GBP/USD to its highest since early May, traders said.