Euro climbs as US data disappoints and trade tensions flare
Fresh concerns over global trade have weighed heavily on investor sentiment in the United States, helping to push the euro to its highest level since late April. The EUR/USD pair touched an intraday peak of $1.1450 yesterday, buoyed by underwhelming US PMI figures that showed a further decline in manufacturing activity, slipping from 48.7 to 48.5 in May.
This uptick in euro strength has prompted hedge funds to rebuild positions favouring the single currency, reversing the cautious pullback seen the previous week when optimism had briefly cooled. However, while near-term interest has revived, the broader one-month sentiment remains tepid. This is reflected in risk reversal pricing, which continues to sit below the recent average.
Meanwhile, renewed threats from Donald Trump to raise tariffs on steel and aluminium to 50% have drawn a sharp response from the European Commission. Brussels has warned that such measures undermine ongoing talks and has made it clear that the EU is ready to respond if a deal is not struck by the 9th of July.
To try and defuse tensions, the European Union’s trade commissioner is scheduled to meet with US Trade Representative Jamieson Greer in Paris on Wednesday. At the same time, another delegation from the Commission will be in Washington for additional discussions.
Looking ahead, investors are focused on tomorrow’s JOLTS job openings data and Friday’s non-farm payrolls report. These releases could either reinforce or challenge the recent stream of disappointing US indicators. With the dollar under pressure and much of the euro’s negative news—such as the ECB’s rate cut and sluggish Eurozone inflation—already accounted for, EUR/USD may well hold above $1.14 into the weekend.
Pound steadies as external forces shape early-week movements
At the start of the week, sterling’s movements have mirrored patterns seen in April, with its direction largely influenced by external market forces and currency flows. As the euro strengthened significantly against the dollar, EUR/USD’s rise pulled GBP/EUR closer to €1.18, while simultaneously lifting GBP/USD above the $1.35 mark. The US dollar remains under pressure whenever trade tensions re-emerge, and there are early signs that geopolitical uncertainty is once again placing strain on the currency.
Sterling has now recorded four straight months of gains against the dollar, raising the possibility of further advances if investors continue to reduce their exposure to US assets amid persistent policy uncertainty. A move toward the $1.40 level later this year remains a distinct possibility, assuming broader economic indicators remain supportive. Factors such as changes in interest rate expectations, global political developments, and overall market sentiment are likely to be key influences in the months ahead.
On the domestic front, the UK’s manufacturing sector saw a slight improvement in May, with the final PMI figure revised to 46.4 from an earlier estimate of 45.1, and up marginally from April’s reading of 45.4. Nonetheless, conditions remain difficult, as businesses face weak global demand, unpredictable trading environments, and rising input costs. These challenges have continued to weigh on output, new orders, exports, and staffing levels. Updated figures for services and composite PMIs are due to be released tomorrow.
