The dollar strengthened on Tuesday, 28 July 2026, while the euro and pound struggled as currency markets weighed rate expectations, oil prices and political risk.
The dollar has climbed to a one-month high as currency markets weigh interest-rate expectations, oil prices and political uncertainty in the United States, Europe and the United Kingdom.
The dollar strengthened on Tuesday, 28 July 2026, while the euro and pound struggled to make progress, as traders reassessed the outlook for interest rates and political risk across the major currency markets.
The dollar index, which measures the US currency against a basket of major peers, touched its highest level since 25 June. The euro remained below $1.14, while sterling traded near its weakest level since early July, after a sharp reversal from last week’s highs. The moves came during a busy week for central banks, with the Federal Reserve due to announce its decision on Wednesday, 29 July, and the Bank of England set to follow on Thursday, 30 July.
The shift has left many traders asking the same question: why is the dollar rising again when oil prices have eased, and why are the euro and pound finding it harder to benefit? The answer lies in a mix of rate expectations, political uncertainty and the way markets are judging each economy’s ability to absorb higher inflation, higher borrowing costs and government policy risk.
Dollar climbs as rate risk returns
The dollar’s latest move is being driven by a change in how markets are reading the next US rate decision. Earlier in July, a hold from the Federal Reserve looked like the dominant expectation, but the recent oil rally and renewed inflation pressure have left traders less confident that US policymakers can stay patient.
This does not mean a rate rise is guaranteed, however, it does that mean the dollar has regained support from the idea that US rates may stay higher for longer, or that the Federal Reserve may need to sound more cautious about inflation than markets had previously expected. Even a small shift in that direction can matter for currencies because the dollar remains the centre of global funding, reserves and cross-border trade.
FX Trust Score previously reported that the US dollar has regained influence across global markets, and the latest move shows why that matters. When rate expectations move back in favour of the dollar, other currencies can struggle even when their own domestic stories have not changed dramatically.
The dollar is also benefiting from relative clarity. US politics and trade policy remain a source of uncertainty, but markets are currently focused more on the rate outlook than on the political noise. That gives the dollar an advantage at a time when the euro and pound are each facing their own domestic constraints.
Euro holds steady but fails to break higher
The euro has not fallen sharply, but it has struggled to make a decisive move higher against the dollar. That matters because the European Central Bank has also been dealing with inflation risk, energy uncertainty and the possibility of further tightening later in the year.
The ECB left rates unchanged last week, but kept the door open to more action if inflation pressure remains stubborn. In normal conditions, that might have offered stronger support to the euro. Instead, the currency has been held back by the dollar’s recovery and by uncertainty over Europe’s exposure to energy prices, trade friction and weaker growth.
The euro’s problem is not a lack of rate support altogether. It is that the dollar has become more attractive again just as Europe faces a less straightforward economic backdrop. Higher energy costs can lift inflation, but they can also hurt households, business confidence and industrial demand. That makes the euro’s rate story more complicated than a simple comparison of central-bank policy.
For now, EUR/USD remains trapped between those forces. The euro is not trading like a currency in crisis, but it is also not showing enough momentum to break away from the dollar while US rate expectations remain firm.
Pound weakens as UK politics adds pressure
Sterling has had the most visibly political story of all three major currencies.
The pound slipped to around $1.327 on Tuesday, close to its weakest level since early July, as markets looked ahead to the Bank of England decision and continued to assess the fiscal direction of Prime Minister Andy Burnham’s government. The currency had rallied earlier in the month as some concerns over the UK’s fiscal outlook eased, but that support has faded as traders wait for clearer policy signals.
The Bank of England is widely expected to hold rates steady this week. Softer labour-market data has reduced pressure for an immediate move, but that also makes sterling less attractive at a time when US rate expectations have moved in the opposite direction. If the dollar is being helped by the risk of a tougher rate message, the pound is being held back by the prospect that the Bank of England may avoid one.
UK politics adds another layer. Sterling is sensitive not only to interest rates, but also to government borrowing, tax plans and bond-market confidence. Markets have been watching whether the new government will stay close to existing fiscal rules or whether spending plans could increase pressure on public finances.
FX Trust Score previously noted that UK fiscal risk was not gone, and that remains the right lens for sterling. The pound does not need a political crisis to come under pressure; it only needs enough uncertainty to make traders question whether UK assets deserve a stronger currency.
Oil prices complicate the currency picture
Oil has added to the confusion in currency markets because it affects each major currency in a different way. When oil prices rise, inflation concerns usually increase. This can support the dollar if traders believe the Federal Reserve will respond more forcefully, but it can hurt currencies tied to economies that are more exposed to imported energy costs. When oil prices fall, some inflation pressure eases, but the benefit is not always enough to reverse currency moves if rate expectations have already shifted.
It is why the current market does not look straightforward. Lower oil prices have given some relief after the recent rally, but they have not fully removed the inflation risk created by Middle East shipping disruption and earlier energy-price gains. Markets are still trying to decide whether the oil move was a temporary shock or part of a longer inflation problem.
This matters for the euro and pound because Europe and the UK are both sensitive to energy costs. It also matters for the dollar because the US currency often strengthens when markets become more defensive or when global rate expectations favour the United States.
Political risk is not moving all currencies equally
Political risk is also uneven across the three currencies. In the United States, political uncertainty around tariffs, trade policy and foreign affairs remains important, but the dollar is currently being driven more by rate expectations and its global reserve role. In Europe, the political issue is less dramatic but still present through trade exposure, energy dependence and the challenge of setting one monetary policy across economies with different growth pressures.
In the UK, the political link is more direct. Sterling is reacting to the early economic signals from a new government, the fiscal outlook and the possibility that bond markets may demand discipline before rewarding the pound with a stronger recovery.
This is why the dollar, euro and pound are not simply moving on the same global story. They are all reacting to the same themes, but from different starting points. The dollar has rate support, the euro has limited upside while growth and energy questions remain open, and sterling has the added burden of domestic fiscal uncertainty.
Forex volatility remains a risk
The current environment is exactly the kind that can produce sudden moves across major currency pairs. Rate decisions, inflation comments, oil headlines and political signals can all change the tone quickly, especially when markets are already positioned for one outcome.
FX Trust Score has previously reported that traders should be prepared for larger moves across forex markets, and this week gives that warning fresh relevance. EUR/USD, GBP/USD and USD/JPY are all exposed to central-bank decisions, while sterling also has a domestic political risk premium that can shift quickly around policy announcements.
For retail traders, the key point is that major currencies can still move sharply even when the headlines sound familiar. A central bank holding rates steady may not be enough to calm markets if the language around inflation, growth or future policy changes. Likewise, a political reassurance may only help temporarily if bond markets or currency traders want more detail.
What comes next
The next stage will be shaped by the Federal Reserve decision on Wednesday, 29 July, followed by the Bank of England decision on Thursday, 30 July. The ECB has already left rates unchanged, so the euro’s next move may depend more on the dollar and broader European data than on a fresh policy decision this week.
If the Federal Reserve sounds more hawkish than expected, the dollar could remain supported and put further pressure on both EUR/USD and GBP/USD. If the message is more cautious, some of the recent dollar strength could unwind, especially if traders decide that rate-hike expectations had moved too far.
For sterling, the Bank of England decision matters, but so does the political backdrop. A steady rate decision may be less important than what policymakers say about inflation, labour-market weakness and financial conditions. The pound may also remain sensitive to any new signals from the government on spending, taxation and fiscal rules.
The dollar’s rise, the euro’s hesitation and the pound’s weakness are therefore part of the same broad story. Currency markets are trying to price politics, inflation and central-bank risk at the same time, and none of those forces has settled yet.
