Sterling Holds Its Ground: Calm Amid Central Bank Crosswinds
The British pound continues to hold firm in early July, with GBP/USD trading near 1.374, slightly below recent highs as traders digest mixed UK economic data and global monetary signals. The pound's resilience is rooted in expectations that the Bank of England may lean toward maintaining a relatively tight monetary stance compared to its global peers, particularly the U.S. Federal Reserve. Although UK inflation has cooled modestly, it remains above the BoE’s target, adding weight to the hawkish camp within the Monetary Policy Committee.
The economic calendar for July is pivotal for the pound. The Bank of England's July meeting minutes are expected to offer deeper insight into internal policy divisions, especially with ongoing concerns about wage inflation and services sector strength. Additionally, Q2 GDP figures (scheduled for release later in the month) will be a crucial barometer of the UK economy’s post‑inflation recovery. Labour market data, including wage growth and unemployment claims, will round out the data picture and feed directly into rate expectations.
In terms of short-term outlook, GBP/USD is expected to remain within a 1.36 to 1.38 range. Stronger than expected GDP or wage data could push the pair toward the upper band, while dovish sentiment from the BoE or negative global risk sentiment could create downside pressure. With political stability largely intact and inflation gradually normalising, sterling looks likely to remain relatively steady in the near term.
Dollar on the Defensive: Fed Dovish Tilt Weighs on Greenback
The US dollar index (DXY) has weakened notably over the past month, slipping to around 96.6, its lowest level since early 2022. This decline has been driven by a combination of softer U.S. economic data, rising fiscal concerns in Washington, and shifting expectations around the Federal Reserve’s monetary policy path. As the market absorbs signs that the Fed could cut rates as soon as September, the dollar has lost ground against both the euro and sterling. Year to date, the dollar is down more than 9% versus the euro and nearly 7% against the pound.
All eyes now turn to this week’s non-farm payrolls (NFP) data, due July 3. A soft print, particularly in wage growth or participation, could reinforce dovish expectations and accelerate dollar selling. Fed Chair Jerome Powell’s remarks at the ECB’s Sintra Forum will also be closely watched. Any indication that the Fed is concerned about weakening labour trends or disinflation would weigh further on the greenback. In addition, core PCE inflation and retail sales data later this month will shape the outlook for consumer strength and policy reaction.
The USD outlook remains bearish in the near term. The dollar index could test 95.0 if NFP surprises to the downside or Powell signals a policy shift. However, a strong labour print or unexpected hawkishness could stall the decline and send DXY back toward 98.0. The fiscal backdrop, especially with renewed budget wrangling in Congress, adds another layer of uncertainty for dollar bulls.
Euro Ascendant: ECB Confidence Lifts the Single Currency
The euro has outperformed in 2025, with EUR/USD trading above 1.18, marking one of its strongest first-half performances in years. The rally has been fueled by a hawkish European Central Bank, improving Eurozone economic data, and relative weakness in the U.S. dollar. Despite geopolitical friction and uneven growth across the bloc, confidence in the ECB’s inflation-fighting resolve has drawn investors back to the single currency. Inflows into European assets have also been boosted by the bloc’s green transition investment push and long-term fiscal policy clarity.
This month’s ECB Forum in Sintra saw key officials, most notably Christine Lagarde, reaffirm the bank’s data-dependent but tightening-biased stance. The market is now pricing in at least one more hike before year-end, contingent on inflation holding above 2%. The July calendar includes German industrial output figures and Eurozone CPI, both of which will be watched for signs that the Eurozone’s recovery is broadening. Also noteworthy is the anticipated rollout of new fiscal support measures, including pan-European infrastructure and green energy initiatives, which may bolster the growth outlook.
In the near term, EUR/USD is likely to trade between 1.17 and 1.19. Should inflation remain sticky and the ECB retain a hawkish tone, the euro may continue to edge higher. Conversely, softer data from Germany or dovish pivot chatter could cap gains. The euro remains the most structurally supported of the three major currencies, though its recent rally leaves limited short-term upside unless fresh catalysts emerge.
