The U.S. dollar is broadly softer this morning against major peers amid a complex mix of inflation data, fiscal policy speculation, and geopolitical risk.

Market Snapshot

USD/CAD: ↓ 0.22%

EUR/USD: ↑ 0.34%

GBP/USD: ↑ 0.10% (after hitting a three-year high earlier)

While the greenback is modestly weaker across the board, sterling has experienced the most intraday volatility following hotter-than-expected inflation readings out of the U.K.

Key Market Drivers:

U.K. Inflation Surprises to the Upside

• Headline CPI rose to 3.5% in April, exceeding the 3.3% forecast and marking the highest reading since 2024.
• Core CPI also beat expectations at 3.8%, while services inflation surged to 5.4% (vs. 4.8% expected).
• Even the Retail Price Index (RPI) climbed to 4.5%, further underscoring persistent inflationary pressures.
• The initial reaction saw GBP/USD spike to a three-year high, though gains have since retraced amid broader dollar flows and profit-taking.

U.S. Policy Shifts in Focus

• President Trump is reportedly gaining support for a new bill that would cut taxes while boosting spending on oil exploration and military programs.
• Markets are increasingly concerned that such policies could worsen the U.S. deficit, adding to long-term structural pressure on the dollar.
• Moody’s recent downgrade of the U.S. credit rating—now aligned with Fitch and S&P—reflects these mounting fiscal risks. While it hasn’t triggered a sharp sell-off, it contributes to growing caution around U.S. assets.

Geopolitical Watch: Middle East Tensions

Renewed tensions between Israel and Iran have added a layer of uncertainty to global markets. Oil prices have seen a modest uptick, though Saudi Arabia’s commitment to price stability has so far capped major moves. This remains a key area to watch for shifts in risk sentiment and potential safe-haven flows.

Today’s trading session is being shaped by U.K. inflation surprises, U.S. fiscal concerns, and geopolitical instability—all contributing to a softer U.S. dollar. As we monitor Treasury yields, energy markets, and policy headlines, expect continued volatility and heightened sensitivity to macroeconomic data in the days ahead.