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Market Overview
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The dollar strengthened broadly despite weaker U.S. retail sales, buoyed by progress in EU-U.S. trade discussions and heightened geopolitical tensions. Sterling softened ahead of key UK inflation data, showing limited reaction to a modest US-UK trade agreement. Overnight, dollar momentum persisted as speculation grew around potential U.S. involvement in the Middle East conflict following high-level security talks. Market sentiment remains cautious amid both economic and political crosscurrents.
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GBP
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Sterling saw declines across major currency pairs, under pressure ahead of the UK’s inflation print released this morning. Traders showed little reaction to the announcement of a new trade agreement between the UK and the US, which is projected to soften tariff-related costs by approximately 3–7% and contribute a modest 0.1% boost to GDP. Market focus remained squarely on the upcoming inflation data, seen as a key driver of monetary policy expectations moving forward.
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USD
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The greenback extended its upward momentum on Tuesday, posting broad-based gains even as May’s retail sales figures came in weaker than expected. Market participants may have looked past the soft data, focusing instead on optimism surrounding transatlantic trade. Remarks from European Commission President Ursula von der Leyen, who confirmed progress in EU-US trade negotiations and a July 9th target for resolution, appeared to support sentiment. Dollar strength persisted into the Asian session following reports that President Donald Trump held lengthy discussions with top security officials over the situation in the Middle East, raising speculation around potential U.S. involvement.
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EUR
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Sterling saw declines across major currency pairs, under pressure ahead of the UK’s inflation print released this morning. Traders showed little reaction to the announcement of a new trade agreement between the UK and the US, which is projected to soften tariff-related costs by approximately 3–7% and contribute a modest 0.1% boost to GDP. Market focus remained squarely on the upcoming inflation data, seen as a key driver of monetary policy expectations moving forward.
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CNY
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China’s central bank has reaffirmed its commitment to advancing the digital yuan and supporting a multi-polar global currency system, as it aims to reduce reliance on the U.S. dollar. The People’s Bank of China emphasized promoting cross-border use of the digital currency and enhancing settlement infrastructure as part of its strategic priorities. These steps come amid rising geopolitical tensions and reflect China’s long-term goal of increasing the renminbi’s global role.
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UK inflation figures released this morning showed a slower-than-anticipated decline in May, with headline CPI easing slightly to 3.4%. Core inflation dipped to 3.5%, while services inflation saw a more notable drop to 4.7%. Some of the moderation, however, is being linked to a data revision by the Office for National Statistics correcting prior misreporting in April’s numbers. Despite the nuanced print, market forecasts still lean towards a Bank of England rate cut in September, with a follow-up move anticipated by year-end. Sterling opened the day modestly firmer.
All eyes now turn to the Federal Reserve’s policy meeting later today. No changes to interest rates are expected, and given persistent global uncertainty, the Fed is likely to avoid signaling any imminent shift in its policy stance—despite four consecutive months of easing inflation. Attention will be focused on the updated dot plot, which will offer clues about the Fed’s rate path. Markets currently anticipate a cut in October, followed by a strong probability of another in December. Should the Fed downplay the likelihood of a second move, the dollar could see renewed support.
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HOW WE CAN HELP
Our experienced currency team is here to ensure you make the most of your international transfers. By gaining a clear understanding of your goals, we offer personalised support and recommend the most suitable strategies to help you navigate the currency market with confidence. Get in touch with Osman Hanif today on +44 (0) 20 3371 9200 or email osman@magnafinancial.com
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