)
GBP - Attention turns to the next Chancellor
Sterling strengthened last week, with GBP/EUR breaking key technical support as investors unwound short GBP positions. With market volatility subdued and Sterling continuing to offer an attractive yield advantage over several major currencies, there has been little incentive for investors to maintain bearish positions against the Pound.
Attention now gradually shifts towards UK politics. Later this month, markets will begin focusing on the anticipated change in government leadership and, critically, the appointment of the next Chancellor. Fiscal policy expectations are likely to become increasingly important for Sterling as investors assess whether the incoming administration has sufficient flexibility to support growth without materially increasing taxation.
At the same time, expectations remain that the Bank of England will leave interest rates unchanged for the remainder of the year. Should fiscal uncertainty increase while monetary policy remains on hold, Sterling could surrender some of its recent gains.
Markets will also continue monitoring UK economic data for evidence that domestic inflationary pressures are easing sufficiently to support the Bank of England's current policy stance.
No Major Data
EUR - ECB speakers take centre stage
The Euro enters the week holding comfortably above the $1.1400 level against the Dollar as investors continue to assess the outlook for European Central Bank policy alongside broader geopolitical developments and global risk sentiment.
Markets are currently assigning less than a 50% probability to an ECB rate increase in September. However, policymakers are unlikely to signal victory over inflation while underlying price pressures remain elevated. A busy calendar of ECB speakers this week, including Executive Board members Isabel Schnabel and Philip Lane, is expected to reinforce the message that inflation risks continue to warrant caution.
Against this backdrop, EUR/USD may remain range-bound while investors seek greater clarity on the relative policy paths of the ECB and the Federal Reserve. With the US central bank maintaining a comparatively hawkish stance, upside potential for the Euro may remain limited in the near term.
No Major Data
USD - Dollar support remains firm
The Dollar begins the week on a firm footing despite last week's softer-than-expected employment data. While the labour market release prompted some moderation in interest rate expectations, it has not materially altered the broader outlook for US monetary policy.
Money markets continue to price a modest amount of additional Federal Reserve tightening before year-end, reflecting the view that inflation remains above target and that policymakers remain committed to restoring price stability. Attention this week turns to the release of the latest Federal Open Market Committee minutes, the first under Chair Kevin Warsh, which markets expect to reinforce a disciplined and inflation-focused policy stance.
Monday's US ISM Services PMI will provide an important update on business activity across the services sector. Markets expect the data to remain broadly consistent with steady economic growth while showing some moderation in price pressures after recent highs.
Elsewhere, the absence of significant intervention from Japanese authorities has allowed USD/JPY to resume its upward trend, reinforcing the view that policymakers in Tokyo remain selective in deploying foreign exchange reserves despite continued Yen weakness.
Overall, the combination of relatively attractive US yields, resilient economic activity and a cautious Federal Reserve continues to provide underlying support for the Dollar as markets move further into the summer trading period.
Weekly Data:
6th July: 3pm - ISM Services PMI
8th July: 7pm - FOMC Meeting Minutes
Subscribe to our weekly market updates for expert insights into major currency movements.
At VFX, our team of experienced brokers supports businesses in navigating volatile currency markets, ensuring that our clients can move, manage and protect money across borders without friction.
If your business is looking for alternative banking solutions or ways to mitigate FX risk, contact our team today or call +44 (0) 20 7959 6900.