Euro remains under pressure as fresh drivers fail to materialise

The trade discussions between the United States and the European Union have yet to deliver any tangible progress, a factor that contributed to the euro drifting modestly lower yesterday, closing with a marginal loss of 0.05%. Nevertheless, the currency showed some resilience during Asian trading hours, buoyed by a flare-up in trade frictions after President Trump declared that a 50% tariff would be imposed on Brazilian imports from 1 August.

Even so, the mere threat of punitive measures seems to have lost much of its potency in drawing meaningful support for the euro at the dollar’s expense. The single currency now appears to be lacking in compelling reasons to climb further. Investors are increasingly waiting for more disappointing news from the US to justify any renewed buying of euros. With the market having largely absorbed expectations for both the European Central Bank and the Federal Reserve, and policymakers on both sides adopting a wait-and-see stance, the euro is likely to continue its gradual decline and hover close to the $1.17 support threshold until more decisive developments occur.

Yesterday’s remarks from ECB officials Lane, Guindos and Nagel underscored a cautious approach. Their statements made clear that the central bank sees no pressing need to ease policy further, preferring instead to rely on incoming economic data and to assess conditions at each meeting. This approach is especially relevant given the uncertainty surrounding global trade relations.

Across the Atlantic, a similarly guarded sentiment emerged in the minutes of the Federal Reserve’s recent meeting, which highlighted concerns that fresh tariffs could contribute to rising inflationary pressures.

As traders place greater weight on macroeconomic releases rather than headlines about tariffs, attention now turns to today’s US jobless claims and, more significantly, next week’s consumer price data for June. Should these figures come in below expectations, they could revive speculation of a softer policy stance from the Federal Reserve. Such a shift, which had faded following robust non-farm payrolls, could deliver much-needed momentum to a euro rally that has recently shown clear signs of losing steam.

Sterling edges lower as traders await fresh data

Much like the euro-dollar pairing, the pound-dollar exchange rate has retreated in recent sessions, slipping back from last week’s peak of $1.3790. Yesterday, the pair briefly touched support near the 21-day moving average, a move that hints at the possibility of the rally running out of steam.

Although technical indicators point to a loss of upward momentum, it remains premature to declare a definitive shift towards a sustained decline. The Relative Strength Index, which measures the pace and scale of price changes over a fortnight, has eased towards a neutral reading of 50, down from 70 at the end of June. This moderation suggests that the bullish forces propelling sterling have weakened, but have yet to fully unwind.

Sterling’s struggle to gather momentum, even during a week when the UK was expected to stand out as one of the few nations securing a trade agreement with the United States, reflects a growing appetite among investors for solid economic evidence rather than optimistic sentiment alone. A comparable pattern has been developing in the euro-dollar pair, where enthusiasm has similarly given way to caution.

Attention is now directed towards forthcoming UK economic reports, with GDP figures, manufacturing output, and industrial production data all on the horizon. While industrial and manufacturing production are forecast to remain slightly negative on a monthly basis, both measures are generally expected to show signs of recovery. As for GDP, analysts foresee a modest rise of 0.1% in May, representing a rebound after April’s 0.3% decline.