July started with a Middle East peace deal and falling oil prices, then swung hard on oil volatility through the month. The result: the dollar’s worst month since April, sterling’s best since spring.
For businesses managing currency exposure exposure across dollars, euros or pounds, July was a month worth paying attention to. August looks set to be equally impactful.
What happened in July?
- The dollar had its worst month since April. Softer-than-expected US economic data and inflation worries dragged it down: the euro gained roughly 1% against it, the pound 1.7%.
- The euro was pulled two ways. Energy-led inflation kept eurozone trading choppy: gains against the dollar, losses against the pound.
- The pound had its best month since early spring, helped by promises of fiscal responsibility from new PM Andy Burnham.
What it means for you: a weaker dollar makes US imports pricier for European buyers but is good news for exporters selling into the US. A stronger pound helps UK businesses with overseas supply chains, but could squeeze UK exporters competing on price.
What’s in store in August?
The pound
The Bank of England held rates in July, and markets now expect it to keep waiting rather than move. That’s one factor to watch, but the bigger one is the Middle East. A deal to reopen the Strait of Hormuz could lift sterling further; an escalation could reverse it fast. Closer to home, signals on government spending ahead of October’s budget could also move the pound this month.
If you’re paying in GBP: don’t assume July’s strength holds. Geopolitics, not the BoE, is currently in the driver’s seat.
The euro
Eurozone factory output hit a 4.5-year high in July and inflation ticked up, enough that the ECB may start weighing another rate hike, though its next decision isn’t due until September. Oil remains the wildcard: prices have fallen on hopes of renewed Middle East negotiations, and could swing hard either way depending on how those talks go.
If you’re paying in EUR: rate-hike chatter plus oil volatility means the euro could move quickly in either direction. It may be worth planning for upcoming payments now rather than waiting for the ECB’s September call.
The dollar
The dollar was July’s weak spot, and there’s reason to think that continues. Markets are increasingly doubtful the Fed will raise rates soon, and a strong pound and euro make the dollar look weaker by comparison. Middle East developments cut both ways here too: a peace deal could send investors out of the dollar’s safe-haven appeal and into higher-return assets elsewhere; an escalation could send them straight back. Domestic employment and inflation data due this month could also reverse July’s losses.
If you’re paying in USD: this is the currency with the most moving parts right now. Businesses with USD exposure might expect the widest range of outcomes this month.
The takeaway?
July proved how fast sentiment can flip on a single geopolitical headline. August has at least three of those headlines still to come: a possible Hormuz deal, the ECB’s rate signal and UK budget details. While these aren’t outcomes you can predict, your exposure to them is something you can manage.
The bottom line: if your business trades across GBP, EUR or USD, this is not the month to leave currency risk unmanaged. Talk to your Lumon FX specialist about hedging strategies that protect your margins, whichever way these headlines break.
