Dollar on the Back Foot as Political Risks Rise
GBP: Trade Deal with the U.S. Supports the Pound
The pound strengthened last week, supported by the announcement of a UK–U.S. trade agreement. The deal reduced tariffs on British automotive and aerospace exports, boosting optimism around UK trade and economic prospects.
Sterling also benefited from broader dollar weakness. GBP/USD climbed from 1.3377 to 1.3726 over the course of the week.
The outlook for the pound remains constructive, but future performance will depend on domestic data and ongoing developments in U.S. monetary and fiscal policy.
EUR: Gains on Dollar Weakness and Steady Policy Outlook
The euro posted a strong performance last week, rising from approximately 1.15 to 1.17 against the U.S. dollar. Political uncertainty in the U.S. and concerns over central bank independence weighed on the dollar and provided relative support for the euro.
At the same time, the European Central Bank maintained a cautious but steady approach to policy, which further supported sentiment. Positive news around a ceasefire in the Middle East and Germany’s new defence and infrastructure spending plans also helped.
The euro may continue to benefit if U.S. fiscal and political concerns persist, although any unexpected policy shifts could change the direction.
USD: Political Tensions and Fiscal Fears Weigh on the Dollar
The U.S. dollar came under pressure last week as political uncertainty and fiscal concerns dominated the narrative.
Former President Trump’s 940-page tax-and-spend proposal has stalled in the Senate. If it fails, markets may interpret this as a sign of fiscal discipline, which could support the dollar in the short term. However, if the bill passes, the resulting increase in deficit spending and inflation risk may undermine longer-term confidence.
Investors pulled $11 billion from U.S. long-term bonds last quarter—the largest outflow since early 2020—reflecting concerns about rising debt, inflation, and new tariffs. Although this pushed bond yields higher, confidence in U.S. fiscal policy has weakened.
Adding to the pressure, Trump’s public criticism of Federal Reserve Chair Jerome Powell has raised doubts about the Fed’s independence. Markets are now pricing in potential rate cuts, not due to economic weakness, but because of political pressure. The dollar index dropped to its lowest level in over three years as a result.
While higher yields may provide temporary support for the dollar, longer-term risks remain if confidence in U.S. economic governance continues to deteriorate.
Gold: Cautious Sentiment Keeps Prices Elevated
Gold prices fluctuated last week amid ongoing geopolitical risks and speculation around U.S. monetary policy. The metal opened around $3,352 per ounce on June 23 and closed at approximately $3,274 on June 27, reflecting a modest weekly decline.
Despite this dip, ongoing concerns over inflation, fiscal policy, and global stability have kept safe-haven demand intact. Gold remains sensitive to further developments, particularly around U.S. rate expectations and geopolitical headlines.
Outlook
In the week ahead, markets are likely to remain focused on U.S. political developments, central bank commentary, and key economic data releases. With the dollar under pressure, sterling and the euro could continue to benefit in the short term, provided no major surprises emerge.
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