USD

The dollar continues to tread water, with inflation data scheduled for release later this week taking centre stage. Wednesday’s Producer Price Index and Thursday’s Consumer Price Index are not expected to move the needle dramatically on their own, but they will be key in shaping the Federal Reserve’s tone in its upcoming policy meeting. Current expectations already factor in rate cuts, so unless the numbers surprise sharply, the impact may be muted.

The latest revision to the Non-Farm Payrolls suggests a softer labour backdrop, but markets have long priced this in. Attention has shifted to how tariffs filter through into consumer prices. Should inflation pressures remain limited, talk of a larger fifty-basis-point cut could resurface, pushing the dollar lower. For now, however, the dollar index struggles to break decisively under 97.500, showing resilience despite recent dips.

GBP

Sterling has started the week on a quiet note, but risks are tilted to the downside. Last week’s sharp sell-off in UK government bonds still weighs on sentiment, leaving GBP/EUR under pressure. The exchange rate remains capped below its nine-day moving average, pointing to ongoing weakness. Technical indicators highlight 1.1481 as the next level to watch, reflecting last Tuesday’s low.

Domestically, Friday’s GDP release is unlikely to provide much relief, with expectations for a flat reading in July. The Bank of England faces a balancing act: weak employment signals argue for more easing, while stubborn inflation keeps policymakers cautious. Governor Andrew Bailey’s remarks to Parliament reinforced the impression that rate cuts may not come as quickly as markets hope. This divergence has supported UK yields somewhat, giving sterling temporary stability, though its broader trajectory remains fragile.

EUR

The euro has shown surprising composure despite renewed political turbulence in France. President Macron faces the challenge of selecting his fifth prime minister in under two years, after François Bayrou’s administration collapsed. Investors, however, appear largely unfazed. EUR/USD has climbed to a one-month high, not far from four-year territory, buoyed by dollar softness rather than enthusiasm for the single currency.

France’s fiscal position tells a less comfortable story. The deficit is projected to rise to 6.1% of GDP next year, well beyond EU targets, with debt heading towards 125% of GDP by 2029. Germany, the eurozone’s other heavyweight, is also showing signs of strain, with low growth and higher unemployment. The eurozone’s two largest economies are therefore under pressure, even as markets price in only a limited chance of another ECB cut this year. If coalition-building in France falters, bond spreads could widen, casting renewed doubt on the euro’s stability.

Looking ahead

The coming days bring a cluster of key events: US inflation data, the ECB’s rate decision, and the UK’s GDP release. Dollar direction will hinge on whether inflation signals justify more aggressive Fed easing. In the UK, muted growth numbers are expected to keep sterling in check, while in Europe, politics may yet reassert itself as a driver of volatility. For now, the market narrative remains shaped by US weakness, leaving EUR/USD supported, GBP/EUR subdued, and USD direction dependent on the Fed’s next move.