The US dollar heads into the new week on the back foot after posting its largest weekly loss in three months, handing sterling and the euro some welcome breathing room. With central bank expectations shifting on both sides of the Atlantic, this week’s releases carry more weight than the quiet midsummer calendar might suggest.
Soft US jobs data puts the dollar on the defensive
Friday’s June employment report showed the US economy added just 57,000 jobs, well short of expectations for a figure above 100,000, with the previous month’s total also revised lower. The unemployment rate fell to 4.2%, but the decline was driven largely by workers leaving the labour force rather than by stronger hiring. Markets read the report as a clear sign of cooling, and expectations of a Federal Reserve rate hike in July have been all but priced out.
The currency impact was immediate. GBPUSD climbed by around 1.2% over the week to a two-week high, while EURUSD gained roughly 0.5%. The key test now is Wednesday’s minutes from the Fed’s June meeting, at which policymakers held rates and signalled openness to further tightening. Any indication that the committee, under new Chair Kevin Warsh, remains inclined to hike despite the softer jobs picture could see the dollar recover ground quickly, so businesses with dollar exposure should treat last week’s move as fragile rather than settled.
Sterling at 2026 highs against the euro, but domestic risks build
GBPEUR touched fresh 2026 highs last week, supported by Bank of England Governor Andrew Bailey signalling that rate cuts are not back on the table. Sterling’s yield advantage over the euro remains a powerful support, and it has been the main driver of the pair’s grind higher.
The domestic picture is less comfortable. UK services activity contracted sharply in June, a reminder that the economy is losing momentum even as the Bank holds its line on rates. Politics adds a further layer: the leadership transition to Andy Burnham has so far reassured markets, with his early commitment to fiscal discipline well received, but transitions of this kind rarely pass without moments of volatility. The Bank of England’s Financial Stability Report on Tuesday will offer a read on how policymakers view these risks. For businesses selling sterling or buying euros, current GBPEUR levels are attractive relative to recent rates, but the gap between a strong currency and a softening economy is exactly the kind of tension that can unwind quickly.
Euro steadies as inflation cools and the ECB softens its tone
Eurozone inflation slowed to 2.8% in June from 3.2% in May, with the core rate easing to 2.4%, both below forecasts. Speaking at the ECB’s Sintra forum, President Christine Lagarde noted that risks to euro area inflation and growth have diminished, and markets responded by scaling back bets on a third rate hike this year, though a second move remains the favoured outcome.
That leaves EURUSD supported by dollar weakness but capped by the ECB’s more cautious tone. Thursday’s account of the June meeting, the ECB’s first hike since 2023, will be scrutinised for how much appetite remains for further tightening ahead of the next rate decision on 23 July. A dovish read would likely renew pressure on the euro across the board, including against sterling.
Energy and geopolitics: the pressure valve eases
The gradual reopening of the Strait of Hormuz, continued progress in indirect talks between the US and Iran, and OPEC+’s decision to raise August output targets by 188,000 barrels per day have combined to push oil prices to multi-month lows. Cheaper energy removes a key driver of the inflation shock that forced central banks into a hawkish stance earlier this year, and it has softened the dollar’s safe-haven bid. The risk works both ways: any renewed escalation in the region would quickly restore dollar strength and pressure both GBPUSD and EURUSD. Headline risk remains a live consideration for anyone with near-term currency requirements.
Weeks like this are a useful reminder of how quickly a single data release can move exchange rates by more than 1%, a swing that translates directly into the cost of an invoice, a payroll run or a repatriated profit. If you would like to talk through how this week’s events could affect your upcoming transfers, your Lumon relationship manager is on hand.
The week ahead
Monday 6 July
- US ISM services PMI, the first test of whether the market’s dovish repricing after Friday’s payrolls holds
Tuesday 7 July
- Bank of England Financial Stability Report, with any commentary on the UK growth and fiscal outlook relevant for sterling
Wednesday 8 July
- FOMC minutes from the June meeting, the week’s headline event for GBPUSD and EURUSD
- US 10-year Treasury auction, a gauge of demand for US assets
Thursday 9 July
- ECB account of the June meeting, the first hike of the cycle, watched for clues ahead of the 23 July decision
- China inflation data and German trade balance, a read on global demand
- US weekly jobless claims and speeches from Fed officials Williams and Logan
Friday 10 July
- German and French final June inflation figures
- Canadian employment report
- IEA Oil Market Report, relevant for the energy and inflation picture
