Market overview

FX markets remain short on momentum, with the dollar, euro and sterling all trading inside familiar ranges. Equity sentiment is still doing much of the heavy lifting, helped by continued enthusiasm around AI, while geopolitical risk has not yet translated into a sustained bid for traditional safe havens.

For now, the market is caught between two opposing forces. Softer safe-haven demand is limiting dollar upside, but resilient US data, sticky inflation pressure and firm front-end rates continue to make aggressive USD selling difficult. Lower FX volatility is also keeping carry strategies attractive, leaving major pairs steady rather than directional.

USD: Range-bound, but still supported

The dollar was little changed yesterday, extending the sideways pattern that dominated most of May and has carried into June. DXY continues to find support around 99, helped by the nearby 50-day moving average, while 99.25 and 99.50 remain the key resistance levels to watch.

The macro story remains broadly constructive. April JOLTS delivered a sizeable upside surprise in job openings, even if the quits rate pointed to more caution among workers. Taken together, the data still suggest a labour market with enough resilience to keep the Fed narrative tilted hawkish.

Markets have responded accordingly, with the 2-year OIS curve rising by almost 7 bps so far this week, helped by both JOLTS and Monday’s stronger ISM manufacturing print. Today’s focus turns to ISM services and ADP. Solid numbers may keep front-end rates supported, but investors may be reluctant to chase the dollar much higher before the June policy meeting and clearer guidance from Kevin Warsh.

GBP: Stable, but not convincing

Sterling remains steady rather than strong. GBP/USD is trading towards the top of its 1.34 to 1.35 range, while GBP/EUR continues to hold within 1.15 to 1.16. There is little in recent price action to suggest a meaningful breakout is close.

External conditions have helped. UK yields have moved higher, global risk appetite remains intact and US equities are still trading near record levels. That has allowed sterling to hold its ground through the risk channel.

The domestic picture is less supportive. Sterling looks more passively underpinned than actively bought, with the absence of bad news doing more work than any clear UK-positive catalyst. Earlier support from relative growth resilience and rate expectations has faded, while political and fiscal risks are starting to return to focus ahead of this month’s by-election.

Sterling therefore looks stable on the surface, but vulnerable underneath. It can hold up while global risk stays firm, but it lacks the domestic momentum needed for a more convincing rally.

EUR: Inflation offers limited support

EUR/USD remains broadly flat on the month, trading close to the 1.16 lows and below key moving averages. The balance of risks still leans lower, particularly as the yield backdrop has shifted more decisively in favour of the dollar since the latest phase of geopolitical tension began.

Eurozone inflation for May came in at 3.2% year on year, the strongest reading since September 2023. The upside was not a major surprise given the earlier national releases from Germany and France, but it has reinforced market pricing for almost a full ECB hike next week.

Even so, the euro’s rates support looks limited. The broader eurozone growth backdrop remains soft, and unless the inflation impulse proves persistent, it is difficult to build a lasting hawkish ECB story. For now, EUR/USD looks likely to remain range-bound, with a test of 1.16 possible if Friday’s US jobs report surprises to the upside.

Looking ahead

• ISM services and ADP are the main US data points today.
• Strong US numbers may support front-end rates, but dollar buying could stay restrained before the June policy meeting.
• EUR/USD remains vulnerable if US data continue to outperform.
• Sterling should stay supported while risk sentiment holds, but domestic conviction remains thin.
• Friday’s US payrolls report is the key event risk for a potential break from recent ranges.