Market overview

June opens with FX markets caught between two powerful forces. Higher oil prices and firmer US yields continue to support the dollar, while resilient equity markets, helped by ongoing enthusiasm around AI, are limiting demand for defensive positioning.

The Strait of Hormuz remains a key focus, with little sign of a durable US-Iran breakthrough. That keeps energy risk firmly on the table and reinforces the inflation narrative. For now, risk appetite has not cracked, but the balance is shifting. If energy pressures persist while US data stay firm, the dollar’s support base should remain intact.

USD: Rates and resilience keep the dollar underpinned

The dollar’s May story became increasingly constructive as the month progressed. Early price action was volatile and driven by headlines, including oil swings and yen intervention, but the broader direction became more grounded in macro fundamentals.

Sticky inflation, higher yields and a still-hawkish Federal Reserve gave the dollar a stronger anchor. By month-end, the currency was less sensitive to short-term geopolitical relief and more clearly supported by real yields, resilient US activity and relative protection from the energy shock.

This week, the focus turns to the US May jobs report and ISM surveys. Recent data have held up well, although softer labour signals and rising input costs suggest the backdrop is becoming less straightforward. A prolonged energy squeeze would likely reinforce inflation concerns and keep the dollar well supported.

GBP: Sterling steadies, but conviction remains thin

Sterling was the weakest G10 currency in May, losing more than 1% against the dollar. Even so, GBP/USD has recovered part of its earlier decline, moving back from 1.33 to the upper 1.34s and reclaiming its 200-day moving average.

The issue for sterling is not outright weakness, but a lack of a compelling domestic story. The pound remains highly exposed to dollar moves and global risk appetite, yet recent trading has been asymmetric. It has not fully benefited from positive risk conditions, while it remains vulnerable when sentiment deteriorates.

Against the euro, GBP continues to struggle near 1.16, a level that has repeatedly capped gains. The broader structure remains constructive while support around 1.1500 to 1.1460 holds, but a sustained break higher still needs a stronger catalyst. Bank of England commentary will be watched closely, particularly for guidance on inflation and the timing of future rate cuts.

EUR: The euro stays boxed in near 1.16

EUR/USD remains anchored around 1.16, with neither side of the pair offering enough conviction for a decisive move. The euro has been unable to build on earlier strength, while the dollar has not yet delivered the catalyst needed for a broader breakdown.

The pair slipped by around 1% from May’s highs near 1.18, partly reflecting a shift in relative rate expectations. The earlier advantage from ECB pricing has faded, while Fed expectations have edged higher. That has narrowed the support previously enjoyed by the euro.

Near-term risks look modestly skewed lower. Energy uncertainty remains a drag on the Eurozone outlook, particularly if the Hormuz stalemate continues, while US data have been comparatively resilient. A clean move below 1.16 would therefore leave EUR/USD vulnerable to further downside.

Looking ahead

• US May payrolls and ISM surveys will be the key dollar catalysts.
• Eurozone inflation data will shape expectations ahead of the ECB’s 11 June meeting.
• Bank of England appearances should clarify the UK rate outlook after softer inflation data.
• Oil prices and the Strait of Hormuz remain central to near-term FX direction.
• GBP/EUR resistance at 1.1600 and support at 1.1460 remain the key levels to watch.