Did Retail Sales Just Hand Sterling a Lifeline?

UK retail sales defied expectations in June, giving the pound a lift. The ECB kept rates on hold but signalled a likely September hike. The dollar strengthened as US borrowing costs hit their highest in over a year. Trump slapped tariffs on 60 trade partners as US strikes on Iran entered their 13th consecutive night. Both the Fed and BoE decide on rates next week.

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GBP: Retail Surprise Lifts Sterling but the Ceiling Is Close

GBPUSD 1.3322

The GBP/USD pair recovered some lost ground through the early European session, snapping a five-day losing streak to hold near 1.3325. The retail beat gave the move a fundamental footing, though the technical picture still shows the pair trading below its 50-day moving average with upside looking limited.

The ONS reported this morning that UK retail sales jumped 1.0% MoM in June, crushing the consensus forecast of -0.3%. May's strong 1.2% gain was held unrevised. Online and clothing retailers led the charge, with non-store retailing surging 4.4% MoM. Ex-fuel sales rose 1.1%.

The UK retail beat is real, but the supporting architecture appears shaky. Sterling's recent run drew more from positioning, carry trade dynamics, and possible M&A flows than from any durable improvement in UK fundamentals. Short-dated UK rates hence could drift lower.

Meanwhile, investors grow wary of the UK’s new Prime Minister Andrew Burnham's spending plans and the fiscal risks those plans carry into the autumn. Brent Crude, pushing toward $100 per barrel on renewed Red Sea shipping attacks, adds an inflationary overlay that complicates the Bank of England's (BoE) calculus ahead of its next week's MPC meeting and rate decision.

A strong retail print on its own does not change the macro picture for GBP. Fiscal uncertainty, oil-driven inflation, and a firm dollar combine to cap any upside for the single currency.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3460, 1.3473 and Support sits at 1.3326, 1.3194

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EUR: Euro Gains Ground Despite ECB Hold and Energy Shocks

EURGBP 0.8547 | EURUSD 1.1390

The EUR/GBP pair climbed toward 0.8550 in the European session, near a two-week-high. GBP weakness on the cross is real despite the retail data beat. The euro drew support from the ECB's hawkish hold on Thursday.

The rate divergence story is tightening. The ECB's June hike moved the deposit rate to 2.25%, narrowing the gap with the BoE’s rate at 3.75%. That narrowing rate differential has taken wind from GBP/EUR, which has struggled to hold above 1.18 since mid-July. Technical analysts forecast the EUR/GBP pair strengthening toward 0.8700 as Sterling's rally loses momentum and UK political optimism proves harder to sustain through the autumn.

EUR/GBP is at a two-week high and the direction of travel into next week's BoE decision may not be clearly GBP-positive. Investors are navigating a pair in transition.

EUR/USD slipped to 1.1377 in early European trading. President Lagarde told reporters that some Governing Council colleagues raised the question whether to act again at this meeting. She pledged close monitoring of incoming data through to September.

The ECB is the only major central bank actively raising rates right now, and the market has heard the September signal clearly. Markets now price approximately a 95% probability of a 25bp ECB rate hike in September, with a similar probability of a further move by December. Yet EUR/USD might not be able to break materially higher because the US-eurozone yield gap still favours the dollar by 125 to 150 bps.

Governing Council member Nagel urged patience on Friday, saying the ECB should not pre-commit to any policy moves before September, and that the situation in the Middle East is still highly fragile. Fellow member Kocher noted he sees no hard evidence of second-round inflation effects, but the ECB will act if the inflation outlook deteriorates further.

The ECB is in a hawkish holding pattern, with odds of a September hike live. The euro has limited near-term upside against the dollar given the yield differential but holds the floor for the Eurozone , till the hawkish ECB pivot holds.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8610 and Support sits at 0.8535, 0.8520, 0.8475

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1445, 1.1500 and Support sits at 1.1375, 1.1355, 1.1330

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USD: Fed Pricing and Treasury Yields Drive the Dollar

DXY 101.40

The dollar index (DXY) climbed to 101.40. The 10-year Treasury yield rose to 4.70%, its highest since January 2025. The 2-year yield reached 4.35%. Rising yields and a hawkish repricing of the Federal Reserve (Fed) are the primary drivers.

​The Trump administration's announcement of 10% to 12.5% tariffs on 60 trading partners added a risk-averse tone across Asian and European sessions, pushing regional equity indices lower and driving demand for dollar-denominated assets.

Chair Kevin Warsh has consistently stated that inflation is still too high. The FOMC's June dot plot pointed to a median expectation of one further 25bp hike in 2026. The committee enters blackout ahead of next Tuesday's 29 July decision, with the Fed funds rate expected to hold at 3.50% to 3.75%.

Markets now price around 44 basis points of cumulative Fed tightening by year-end, with a September hike fully priced after June's CPI softened briefly to 3.5% YoY and failed to shift the broader hawkish consensus.

The dollar's safe-haven bid has an additional energy-price dimension: Brent Crude near $100 per barrel, driven by US military strikes on Iranian targets and attacks on Saudi vessels in the Red Sea, feeds directly into US inflation expectations and reinforces the case for a higher-for-longer Fed stance.

The dollar's strength is a function of elevated yields, geopolitical safe-haven demand, and a Fed that may not be done tightening.

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Current Rate Table

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Market lookahead:

Mon, July 27

• Germany’s IFO Business Climate and Expectations (Jul)

Tues, July 28

• US Consumer Confidence (Jul)

Wed, July 29

• Fed Interest rate decision, FOMC Conference

Thurs, July 30

• Germany’s GDP Q2
• Eurozone Consumer Confidence (Jul)
• Eurozone GDP Q2
• BoE Interest Rate Decision, Monetary Policy meeting, BoE Governor Bailey Speech
• Germany’s Consumer Price Index (Jul)
• US Core Personal Consumer Price Index (Jun)
• US GDP Annualised Q2

Fri, July 31

• Eurozone Core Harmonized Index of Consumer Prices (HICP) Inflation figures (Jul)

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