Tense Times: Data, Dovish Shifts, and Global Risks Drive FX Sentiment
GBP: Steady for now, but data and BoE commentary keep the market on edge
Sterling held firm at the start of the week, supported by the Bank of England’s cautious tone. Despite keeping rates unchanged at 4.25% last Thursday, policymakers continue to signal that any move lower will be slow and data-dependent. Governor Andrew Bailey reiterated that the direction of travel is downwards for interest rates—but with “gradual and careful” easing the message, rate cuts are by no means imminent.
With inflation cooling but still sticky, and the labour market showing early signs of softening, the BoE appears reluctant to move too quickly—especially with geopolitical risk and rising energy prices lingering in the background.
The market focus now shifts to UK PMI figures for June, released this morning. Early indicators point to a modest improvement in services activity, though manufacturing remains under pressure. The composite PMI is expected to tick slightly higher from 50.3 to 50.5, hinting at slow but positive momentum.
Sterling has been particularly reactive to domestic data recently, following a string of weaker macro releases. That heightened sensitivity could keep GBP vulnerable to any disappointment in this week’s numbers. Markets are still pricing in two rate cuts by the end of the year, with some even speculating about a third if the economic picture deteriorates further.
In terms of levels, GBP/EUR remains under pressure and could slip towards €1.1628 if sentiment sours. GBP/USD, meanwhile, found support near 1.3440, with Middle East tensions prompting only limited safe-haven flows into the US Dollar so far.
EUR: Soft data to start the week, but downside looks contained for now
The Euro started the week on the back foot, weighed down by another lacklustre set of PMI figures across the Eurozone. Both manufacturing and services data came in below expectations, adding to concerns about the region’s patchy recovery.
Despite the weaker data, the Euro has shown some resilience, with EUR/USD still managing to hold within a familiar range. Markets have tested the $1.1450 support area several times recently, but there appears to be little conviction that the latest geopolitical developments will drive a sustained shift towards the Dollar—at least for now.
Looking ahead, focus turns to the German IFO business climate survey tomorrow, followed by flash inflation prints from France and Spain at the end of the week. Modest improvements are expected, but the broader tone around the Euro remains cautious. The region’s sensitivity to energy prices also remains in play, especially if tensions in the Middle East escalate further.
Technically, as long as EUR/USD stays within the $1.1450–$1.1600 band, the downside risks appear manageable. A move lower towards $1.1400 would likely require either a sharp deterioration in sentiment or a stronger macro push from the US side.
USD: Geopolitics and Fed speak take centre stage
The US Dollar found support early in the week as investors reacted to fresh geopolitical tensions. A series of US strikes on Iranian facilities sparked a modest flight to safety, with the Dollar Index pushing higher during European hours. However, the reaction has been relatively contained so far, with markets still showing reluctance to fully shift back into defensive mode.
Beyond geopolitics, attention turns to a busy week of Fed commentary and data. Fed Chair Jerome Powell is set to speak before Congress on Tuesday and Wednesday, and while rate cut expectations remain in play, the messaging has been mixed. Some Fed officials continue to lean dovish, citing cracks in the labour market and the limited inflationary impact of new tariffs. Others are keeping a more cautious stance, preferring to wait for clearer signals before moving.
Friday’s Core PCE print—the Fed’s preferred inflation gauge—could be the next key data point. A softer number could give the market more confidence in a July or September rate cut, though any move will likely remain heavily data-dependent.
In the meantime, safe-haven demand and a lack of clear alternatives may keep the Dollar supported in the short term, particularly if geopolitical risks remain elevated.
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