Sterling is ending the week with momentum, pushing higher across the G10 space and notching fresh one-year highs against the euro, Swedish krona and Canadian dollar.

The pound continues to draw support from elevated UK yields, which make it expensive for markets to hold short sterling positions. With volatility still subdued and global risk sentiment holding firm, investors have had little incentive to rebuild bearish pound positions.

GBP/EUR has climbed to its highest level in more than a year, with a decisive break above a long-standing resistance area helping to unlock further sterling demand.

The move followed an extended test of the 1.1600 to 1.1630 zone, where layers of sell orders had previously capped gains. Once that area gave way, momentum accelerated, leaving a move towards 1.1700 looking increasingly likely.

FX markets briefly moved to price in a less hawkish Federal Reserve narrative yesterday, before quickly reversing course. Kevin Warsh’s appearance at Sintra disappointed those looking for a clear policy signal, with much of the discussion focused instead on the limitations of forward guidance.

US front-end yields initially fell by around 5 to 6 basis points and the dollar softened, but both moves were later retraced. The market’s eventual interpretation was that Warsh was comfortable allowing incoming data to shape rate expectations, rather than guiding investors outside formal Fed meetings.

FX markets are trading with a firmer risk tone, although price action remains shaped by a familiar mix of resilient US data, shifting rate expectations and political uncertainty. The dollar is holding a broadly stronger bias, but risk-sensitive currencies have also found support as stronger US activity data helped lift equity markets and improve wider sentiment.

The Chicago PMI rose to 56.7, ahead of the 55.7 expected, signalling a firmer pace of expansion. Job openings also surprised to the upside, with the JOLTS report printing at 7.59 million. That has raised the stakes ahead of Thursday’s earlier-than-usual non-farm payrolls release, although tonight’s ADP employment report will be watched closely for a clearer steer.

The dollar has softened against most G10 peers as firmer equity markets restore some confidence across risk assets. Sentiment has also been helped by reports that the US and Iran are set to resume negotiations, despite tensions over the weekend. The pullback in oil, however, has weighed on commodity-linked currencies such as the Australian dollar, Canadian dollar and Norwegian krone, while the yen remains under pressure.

We continue to view the oil move as stretched and see scope for selected high-carry currencies, particularly AUD and NOK, to perform better over the summer should energy prices stabilise at moderately higher levels.

FX markets enter the final sessions of June with a more cautious tone, as the dollar’s retreat from one-year highs has done little to restore broader confidence. Risk-sensitive currencies remain vulnerable, while lower energy prices and shifting rate expectations are starting to reshape the near-term outlook across G10.

US equities are lower by around 3% to 6%, but the sharper move has been in mega-cap technology. Alphabet is down 20%, Apple 10%, Amazon 16% and Meta 30%, highlighting how pressure in a handful of crowded names is now driving the broader risk tone.

Risk appetite has turned more fragile as investors take profits in some of this year’s most crowded equity trades. Pressure on Apple, alongside reports of a potential delay to OpenAI’s IPO, has cooled enthusiasm around the AI-led rally and prompted a broader reassessment of market leadership.

Asia has borne the brunt of the move, with the MSCI Asia Pacific Index down around 3% and Korea’s Kospi briefly halted after a sharp intraday fall. European shares and US futures are also trading softer, pointing to a more cautious start across global markets.

The dollar has broken higher with conviction, helped by a powerful mix of technical buying, defensive flows and renewed confidence in the US macro story. While the move looks bigger than the shift in Fed pricing alone would suggest, the broader market backdrop has turned decisively more supportive.

Rate markets have not fully matched the scale of the dollar rally. US 2-year OIS has fallen by around 7bps since Monday, while expected hikes by year-end have eased from 42bps to roughly 35bps. That makes this less of a simple rates story and more of a broader repositioning move.