Euro Firms While Dollar Awaits Inflation Clue

Sterling found support from stronger UK retail spending. The euro held firm as the ECB gears up for a potential rate rise. The dollar stayed bid after a strong US jobs print. US CPI figures due Wednesday could provide further direction on Fed policy. Geopolitical tensions and diverging central bank expectations continue to drive currency moves globally.

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GBP: Retail Data Surprises, Political Noise Caps the Upside

GBPUSD 1.3371 | EURGBP 0.8632

UK retail sales data surged this morning, with the British Retail Consortium (BRC) report showing a 3.4% year-on-year increase against a 0.6% consensus. Despite this momentum, the currency pair is consolidating around the mid-1.3300s, with upside capped for now. Sterling steadies after a modest bounce from a three-week low against the Greenback.

While the de-escalation of Israel-Iran hostilities provided a brief cushion, UK political instability acts as a stubborn headwind. Prime Minister Keir Starmer faces significant pressure following the resignations of junior ministers, stoking uncertainty that prevents aggressive bullish positioning. The end of hostilities undermines the safe-haven dollar, lending support to cable. Iran announced the end of its attack on Israel, though threats of retaliation over Lebanon keep traders cautious.

BoE’s Alan Taylor said this morning that holding rates is the right place to be right now, adding that a rate cut is not appropriate until there is "more clarity." His language reinforces a BoE in wait-and-see mode rather than one gearing up for a near-term pivot in either direction.

Investors are closely watching monthly UK GDP data and US CPI figures for cable’s near-term direction. Hawkish Federal Reserve (Fed) pricing and UK political fragility cap the upside for the pair. The pair needs a convincing break above 1.3420 before the near-term picture shifts.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3420 and Support sits at 1.3280

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8680 Support sits at 0.8600

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EUR: Industrial Output Inline, ECB Policy Takes Centre Stage

EURUSD 1.1545

The euro finds itself in a delicate balance. German industrial production data and the trade balance for April arrived in the European session. German industrial production for April came in at 0.4% month-on-month, bang on the 0.4% consensus. The prior reading was -0.1%, so the stabilisation is directionally constructive even if it lacks headline drama. Germany's April trade balance printed at €14.5 billion against a €15 billion consensus and a prior €14.7 billion, a slight miss, but not enough to alter the broader narrative.

In April 2026, German exports were up 0.9%, and imports rose 1.2% on a calendar and seasonally adjusted basis compared with March 2026. Compared with April 2025, the Federal Statistical Office (Destatis) further reports that exports increased by 3.6% and imports rose by 6.2%, based on provisional data.

The driver this week is Thursday's ECB meeting, where policymakers are broadly expected to raise key interest rates by 25 bps. ECB communication has been hawkish lately, and expectations of this stance have given the euro a floor. The EUR/USD pair traded above 1.15 and held its ground through early European trade on Tuesday.

Investors will be closely watching ECB President Christine Lagarde's press conference. Any reinforcement of the rate path beyond Thursday's hike, or language that signals further tightening to come, could push the EUR/USD pair towards 1.1600 and possibly higher. The EUR/JPY pair could test 186 on a sustained hold above 185 if that hawkish tone lands.

The dollar index (DXY) failed to sustain a push through 100 and is pulling back towards 99. That retreat creates a more supportive backdrop for euro gains. The US CPI on Wednesday adds one more variable before Thursday's ECB decision lands.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1600 and Support sits at 1.1480

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USD: NFP Blowout Keeps the 'Higher for Longer' Story Alive

DXY 99.92

The dollar index (DXY) recently retreated towards 99.00, losing momentum after failing to sustain levels above 100. Despite this, the Greenback retains a bid due to the Fed’s hawkish stance. Recent US Non-Farm Payrolls data showed a robust increase of 172,000 jobs, beating forecasts of 85,000, reinforcing the "higher-for-longer" interest rate narrative. Its impact carried into Monday and is feeding into Tuesday's session, with the dollar index having broken toward 100 following the data.

Wednesday brings the US CPI for May. The consensus for the headline reading is 0.5% month-on-month, down from 0.6%, and 4.2% year-on-year, down from 3.8%. Core (ex food and energy) is expected at 0.3% month-on-month and 2.9% year-on-year. A hotter-than-forecast print would reinforce the Fed's stance and extend dollar strength. A softer reading could ease the pressure on rate-sensitive pairs. Markets are currently pricing in over a 70% probability of a US rate hike by year's end, reflecting persistent concerns about inflation.

US President Donald Trump said Tuesday that a proposal for an Iran agreement could arrive within days. The geopolitical dimension continues to weigh on sentiment. Earlier on Monday, Israeli Prime Minister Benjamin Netanyahu described the conflict with Iran and Hezbollah as not yet over, even as an initial halt in fighting was announced. A re-escalation in Middle East tensions could support the dollar's safe-haven positioning.

Wednesday also brings the Bank of Canada (BoC) interest rate decision, which could add volatility to the USD/CAD pair and inform broader USD sentiment ahead of the CPI print.

US Treasury yields continue to edge up. A sustained break above immediate resistance levels could extend that momentum and further reinforce dollar support.

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Other Pairs: AUD Flat, JPY Wary, CNY Trade Data Surges

AUDUSD 0.7053 | NZDUSD 0.5832 | USDJPY 160.17 | GBPJPY 213.98

The Aussie dollar edged above $0.705 but held near a two-month low. A partial lift to risk sentiment from the Israel-Iran halt in fighting provided some support, but domestic cost-of-living pressure continues to weigh. The Reserve Bank of Australia (RBA) meets next week with rates widely expected to remain on hold. Australian inflation expectations for June arrive on Thursday, which could shape positioning ahead of the RBA decision.

The USD/JPY pair continues a slow uptrend above 160.00. Intervention risk from Japanese authorities and speculation about a BoJ rate hike are acting as a brake on further yen weakness. The Israel-Iran truce has also taken some safe-haven bids out of the dollar and functions as a modest headwind for the USD/JPY pair. It seems bears are not pressing hard here, but the pair is not confirming a sustained breakout either.

The USD/CNY pair looks bearish towards 6.76-6.75 after a failed test of 6.80 to the upside. China's trade data for May added a constructive note to the week's backdrop. Exports rose 19.4% year-on-year from 14.1% previously. Imports rose 27.4% year-on-year, up from 25.3%. The trade balance in CNY terms was 723.98 billion, up from 585.69 billion. In USD terms, the trade balance was $105.44 billion, up from $84.82 billion. The strong import figure indicates domestic demand is holding up, which supports a more constructive view on CNY.

The NZD/USD pair at 0.5832 continues to reflect broader dollar strength and risk hesitancy.

German yields edged back up. If that holds, it adds support to the broader rate normalisation story across Europe. Crude prices have pulled back, contrary to expectations. The key question is whether they break below $90 or find footing and resume the grind towards $100.

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Current Rate Table:

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Market Lookahead

Wed, 10 June

• US CPI Inflation (May)
• Bank of Canada Interest Rate Decision

Thurs, 11 June

• ECB Interest Rate Decision
• ECB Press Conference
• UK Monthly GDP
• Australia Inflation Expectations

Fri, 12 June

• US consumer sentiment data

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