Sterling rose in European trade on Wednesday on track for the third straight profit against the dollar, hitting a three-week high amid a positive sentiment in UK markets after the government reset relations with the EU.

The UK economy grew by the fastest pace in a year during the first quarter, and recent deals with the US and Europe will likely bolster this growth even further in upcoming quarters.

The developments pressure the Bank of England’s policymakers even further and hurt the odds of a UK rate cut in June, with traders now awaiting important UK inflation data for April later today to gather more clues.

The Price

The GBP/USD rose 0.35% today to $1.3436, an April 19 high, with a session-low at $1.3383.

The pound rose 0.25% on Tuesday, the second profit in a row amid heavy selling pressure.

US Dollar

The dollar index fell 0.4% on Wednesday, plumbing two-week lows against a basket of major rivals.

US President Donald Trump has failed to convince Republicans to pass his tax cuts proposal, while investors are growing cautious from potential attempts by US officials to weaken the dollar during a ministerial meeting for the G7 in Canada.

UK Rates

The UK economy grew 0.7% in the first quarter, the best in a year, beating estimates of a 0.6% rise, and up from a 0.1% rise in the last quarter of 2024.

Following the data, the odds of a UK rate cut in June fell from 30% to 25%.

The UK and the EU reached an agreement to reset ties earlier this week following Britain’s raucous exit in 2020.

Otherwise, the last vote by the Bank of England on monetary policies earlier this month showed a clear division on the path ahead for monetary easing.

UK Inflation

Later today, UK inflation data will be released, with consumer prices expected up 3.3% y/y in April, up from a 2.6% rise in March, while core prices are expected up 3.6%.

The Japanese yen rose in Asian trade on Wednesday against a basket of major rivals, expanding the gains for the seventh straight session against the dollar and hitting a two-week high amid strong haven demand on the yen with risk aversion gripping the global markets.

It comes after bullish remarks by the Bank of Japan Deputy Governor this week, which boosted the odds of a BOJ rate hike this year.

The Price

The USD/JPY pair fell 0.45% today to 143.84 yen per dollar, the lowest since May 8, with a session-high at 144.55.

The yen rose 0.25% on Tuesday, the sixth daily profit in a row, and the longest such streak of gains since July 2023 on haven demand.

Risk Aversion

Most global stock markets are falling currently amid a clear case of risk aversion for various factors, such as:

- US President Donald Trump’s failure to convince his Republican allies with his tax cuts plan.

- Potential attempts by US officials to weaken the dollar during ministerial meetings for G7 officials in Canada.

- The US credit rating downgrade, which sparked concerns about US financial stability 

- A surge in US treasury yields, raising the costs of financing and hurting the appeal of stocks 

Trade Talks

The third round of US-Japan trade negotiations will commence later this week.

Japan’s finance minister Katsunubo Kato said he’ll seek to discuss forex exchange issues with US Treasury Secretary Scott Bessent, realizing that extreme fluctuations aren’t desirable.

Japanese Rates

Bank of Japan Deputy Governor Shinichi Uchida said the bank will continue to raise interest rates if the economy recovers from the negative impact of US tariffs, however he still cautioned that the economic outlook remains highly uncertain.

During a Diet session, Uchida said that main inflation will likely settle near the bank’s 2% target as log as local economic activities pick up. 

Following the remarks, the odds of a BOJ rate hike in June rose from 25% to 30%.

Now traders await important Japanese data on inflation, unemployment, and wages to gather more clues.

Oil prices fell on Tuesday after news that the US-Iran nuclear talks, and the Russian-Ukrainian ceasefire talks both might stumble

The UK and the EU today imposed new sanctions on the Russian shadow fleet of oil tankers, and a collection of financial companies that support the fleet and help it circumvent western sanctions.

Otherwise, Iran’s Supreme Leader Khamenei expressed his doubts on the usefulness of the nuclear talks with the US amid disagreements.

The Energy Information Administration will release data tomorrow on US crude stocks last week.

On trading, Brent futures due in July fell 0.24%, or 16 cents to 65.38 a barrel.

US crude stocks due in June fell 0.21%, or 13 cents to $62.56 a barrel.

Gold prices rose on Tuesday as the dollar dropped against most major rivals as analysts assess global developments on trade and US debt. 

There remains persistent concerns that Trump’s tariffs will push the US economy into a recession, but it remains resilient so far.

In case a recession does occur, the US government‘s ability to stimulate the economy through big spending plans and other fiscal policies would be highly curtailed due to the surging debt ceiling.

Otherwise, US treasury yields rose mildly after a short shock on Monday after Moody’s decision to cut the US credit rating by a notch due to concerns about the US debt levels.

Otherwise, the dollar index fell 0.4% as of 20:20 GMT to 100.08, with a session-high at 100.5, and a low at 100.05.

On trading, gold spot prices rose 1.8% as of 20:21 GMT to $3292.4 an ounce.