Dollar Risk Dominates as Sterling and Euro Hold Firm
GBP
The Pound started the week on a strong note, trading near recent highs against the US Dollar. The move follows a run of UK economic data that came in better than expected, helping improve confidence around the domestic outlook.
UK Retail Sales rose by 0.4% month-on-month, rebounding from the previous decline and surprising markets that had expected another fall. Spending excluding fuel also increased, suggesting consumers remain more resilient than previously thought.
Business activity data added to the positive tone. The UK Composite PMI climbed to its highest level in nearly two years, indicating expansion across both the services and manufacturing sectors.
As a result, expectations around the Bank of England have shifted slightly. While interest rates are still expected to remain unchanged in the near term, markets are now less convinced that multiple rate cuts will be required this year. The first cut is still priced for mid-2026, but confidence in aggressive easing has eased, which continues to support Sterling.
Attention now turns to the US, where upcoming economic data and the Federal Reserve’s interest-rate decision could influence GBP/USD direction later in the week.
EUR
The Euro is trading in a relatively narrow range, with no strong directional bias at present. Against the Pound, EUR has regained some ground, although Sterling’s recent strength limits further upside.
Recent Eurozone data has been mixed. Services activity softened across much of the bloc, pointing to continued pressure on domestic demand. However, Germany delivered modest improvements in both manufacturing and services, offering signs that conditions may be stabilising in the region’s largest economy.
The European Central Bank remains cautious, offering little guidance on future policy moves. Markets have largely scaled back expectations for further rate cuts this year, as services inflation remains elevated and growth remains uneven across the region.
Looking ahead, upcoming German business confidence data could provide short-term direction for the Euro. For now, Euro movements are being driven more by relative central-bank expectations than by a clear improvement in economic fundamentals.
USD
The US Dollar has softened slightly at the start of the week, largely due to renewed focus on possible currency intervention by Japanese authorities rather than weakness in the US economy.
Reports suggest that Japan may have stepped in as USD/JPY approached the ¥159 level, with markets also alert to the possibility of coordination with US officials. This has increased caution around Dollar positioning, particularly against the Yen, and has weighed on broader Dollar sentiment.
Despite this, underlying US fundamentals remain supportive. Interest-rate differentials continue to favour the Dollar, and the Federal Reserve is widely expected to keep rates unchanged at this week’s meeting.
Volatility may remain elevated in the near term, especially around key trading hours. A more sustained move lower in the Dollar would likely require weaker US economic data or a clear shift in Federal Reserve messaging.
Beyond central banks, markets will also be watching earnings from major US technology firms, given their impact on equity markets and global capital flows.
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