USD

The S&P 500 has been rising while the US dollar has been weakening, a pattern shaped by the international reach of many listed companies. Around one-third to two-fifths of their total earnings come from overseas, so when the dollar falls, those foreign revenues are worth more in dollar terms, lifting reported profits. This effect is especially strong in sectors such as technology, where international sales can make up more than half of turnover.

Despite the index’s upward movement, gains are uneven. The equal-weighted version of the S&P 500 is near its peak, yet only about half of its members are trading above their 50-day moving average. Earnings have been the key driver, with over four-fifths of companies exceeding forecasts by a wide margin. The dollar’s decline of nearly 10% is partly due to market expectations of a September interest rate cut, with the bond market now pricing in a peak policy rate close to 3% next year. This anticipated easing supports equities but pushes the currency lower.

GBP

The UK economy grew by 0.3% in the second quarter, beating forecasts of 0.1%. Industrial and manufacturing output also came in stronger than expected for June, reversing the previous month’s contraction. While part of the earlier growth was artificially boosted by exporters rushing orders ahead of tariffs, recent figures still point to resilience despite tax rises and trade frictions.

Sterling has gained ground against the dollar, supported by the Bank of England’s more hawkish stance compared with the US Federal Reserve. GBP/USD moved firmly into the 1.35 area and closed above the 50-day moving average for the first time in weeks. Market attention is now on whether the pair can break the 1.36 level, with 1.37 representing the next significant target. The momentum is partly contingent on upcoming US data reinforcing the divergence in monetary policy paths.

EUR

The euro’s prospects for a stronger rally this year depend more on US monetary shifts than on domestic developments. EUR/USD has climbed above 1.17, and a move toward 1.20 would be in line with its long-term average. Historically, looser US policy has favoured the euro through better rate differentials and capital inflows.

Sentiment towards the eurozone remains subdued, which leaves space for gains if the US–Europe interest rate gap narrows further. The European Central Bank appears cautious about cutting rates again, but small steps toward deeper capital market integration or collective borrowing could encourage longer-term investment in the single currency. Even without a dramatic eurozone recovery, a weaker dollar could be enough to push the euro higher.

Looking ahead

Market dynamics remain highly sensitive to central bank policy expectations. In the US, lower interest rate prospects continue to act as a double-edged sword, supporting equities while eroding the dollar’s value. The UK’s relative economic resilience may give sterling further support if the Bank of England maintains its stance, and the euro could advance without a major domestic turnaround if US policy continues to soften. Currency markets are therefore likely to remain driven more by policy divergence and rate expectations than by immediate domestic performance.