Gulf Truce Nerves Lift Dollar, Weigh on Sterling

Sterling and the euro opened the week on the back foot as renewed Middle East tensions, higher oil prices and expectations of higher US rates kept the dollar supported ahead of key central bank speeches and US labour data. Sterling fell to 1.3198, down 1.9% in June pressured by Burnham's fast-tracked Labour party succession. The ECB annual forum begins today. US payrolls figures arrive Thursday.

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GBP: Political Fog Settles Over the Pound

GBPUSD 1.3215 | EURGBP 0.8631

Sterling opened the week under pressure as investors favoured the dollar after renewed tensions between the United States and Iran unsettled risk sentiment. GBP/USD slipped towards 1.3200, leaving the pound almost ~2% lower over June. EUR/GBP eased towards 0.8631.

The weekend began with fresh exchanges between Washington and Tehran before both sides agreed to halt further attacks and resume talks in Qatar on Tuesday. While the announcement eased fears of immediate escalation, strikes around the Strait of Hormuz continued to disrupt shipping. Oil prices pushed higher, keeping inflation concerns alive and reinforcing demand for traditional safe-haven currencies.

The dollar’s safe-haven position is strengthened at a time when Federal Reserve (Fed) interest rate expectations already favour the US. Treasury yields continued to edge higher after Fed Chair Kevin Warsh adopted a notably hawkish stance earlier this month. Investors now expect US interest rates to stay higher for longer, widening the policy gap between the Fed and the Bank of England (BoE).

Domestic politics add another layer of uncertainty. UK Prime Minister Keir Starmer confirmed last week that he will step down as Labour leader. Investors’ attention has now shifted towards Greater Manchester Mayor Andy Burnham, who is expected to outline his national vision for the United Kingdom on Monday, ahead of a leadership contest that could conclude as early as mid-July. Investors fear the fiscal implications of a leadership change. Markets are pricing in the risk that the incoming administration may struggle to balance the need for regional growth against existing fiscal constraints.

The combination of geopolitical uncertainty, shifting rate expectations and domestic political developments highlights how quickly exchange rates can respond when several themes converge. This theme has offered little support for the pound in the near -term.

The pound's sensitivity here is less about Burnham personally and more about what an accelerated leadership change implies for near-term UK fiscal and economic policy clarity. Until the new leadership signals its direction, that ambiguity is a weight the pound carries into each session. This week's US employment figures and comments from central bankers could further influence whether that trend gathers pace or begins to ease.

Political uncertainty in the UK has prevented the pound from fully capitalising on softer euro sentiment, leaving EUR/GBP largely driven by whichever side delivers the bigger policy surprise over the coming days.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3280 and Support sits at 1.3150

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8660 and Support sits at 0.8590

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EUR: Lagarde Opens the Forum, the Euro Holds Its Breath

EURUSD 1.1410

The euro steadied near 1.1400 against the dollar on Monday, after trading flat at around 1.1386 touching a 13-month low last week. June's total decline is tracking close to 2.4%.

Investors looked ahead to the European Central Bank's (ECB) annual forum in Sintra. The single currency struggled to build momentum after expectations for further ECB tightening faded over recent weeks. Lower oil prices through much of June reduced inflation concerns across the euro area, leading traders to scale back expectations for additional rate increases. Current market pricing suggests policymakers are widely expected to leave interest rates unchanged.

Market attention now turns to ECB President Christine Lagarde, who opens the ECB annual forum on Monday before joining Fed Chair Kevin Warsh and other global central bankers later this week. Investors are more focused on how policymakers describe the months ahead. Any indication that inflation risks persist or that rates may stay elevated for longer could help stabilise the euro. Any divergence between the ECB’s cautious stance and the Fed’s hawkish leanings could widen the yield gap, pinning the euro to the floor.

Higher oil prices following renewed disruption around the Strait of Hormuz risk feeding imported inflation back into Europe, while stronger US yields continue to attract global capital towards dollar-denominated assets.

The week offers several potential catalysts rather than a single defining event. Comments from the ECB, developments in the Middle East and Thursday's US payroll report all have the potential to reshape expectations across the major currency pairs.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1450 and Support sits at 1.1340

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USD: Warsh's Hawks and Gulf Nerves Do the Dollar's Work

DXY 101.29

The dollar entered the new week with momentum firmly on its side.

The US Dollar Index climbed to 101.29, putting it on course for its strongest monthly performance in almost a year. Higher Treasury yields, resilient US economic data, and renewed geopolitical tensions have all reinforced demand for the dollar.

The US and Iran exchanged fresh warnings over the weekend before agreeing to suspend further attacks and resume talks in Qatar on Tuesday. Although the diplomatic breakthrough eased fears of a wider conflict, attacks affecting shipping around the Strait of Hormuz kept oil prices elevated. Brent Crude traded around $72 a barrel, reminding investors that energy supply risks have not disappeared.

For currency markets, higher oil prices matter because they can feed inflation back into the global economy. If inflation proves more persistent, central banks may need to keep interest rates elevated for longer. That narrative already favours the dollar.

Kevin Warsh's first Fed meeting earlier this month shifted expectations sharply. Investors who previously anticipated several rate cuts have instead begun pricing in the possibility of another rate increase before the end of the year. The move pushed Treasury yields higher and widened the interest-rate advantage the United States holds over many developed economies. That policy divergence continues to shape the major currency pairs.

Unless incoming US data weakens materially or the Fed signals a softer policy path, the dollar is likely to draw support from higher yields. Thursday's US Non-Farm Payrolls report and unemployment figures are another key catalyst for the dollar's direction this week.

A resilient jobs report would reinforce expectations that inflationary pressures could persist, supporting higher interest rates and, by extension, the dollar. A weaker outcome could revive discussion of future easing, though investors would likely need to see a broader deterioration in economic data before reassessing the current outlook. Gold and silver also reflected that shift in sentiment.

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Global Crosses: Emerging Pressures

AUDUSD 0.6895 | NZDUSD 0.5649 | USDJPY 161.78 | GBPJPY 213.75

The Australian and New Zealand dollars remain on the defensive, both nursing monthly losses as local tightening expectations have evaporated. In Japan, the yen lingers near 1986 lows. Despite intervention rhetoric from Tokyo, the widening interest rate gap between the US and Japan keeps the pair tethered to the upside. The Swiss Franc continues to steady, though the Swiss National Bank’s commitment to curbing excessive strength keeps a lid on any potential breakout.

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Current Rate Table:

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Market Lookahead

Mon, June 29

• Eurozone Business Climate, Consumer Confidence, Economic Sentiment (Jun)

Tue, June 30

• UK GDP Q1
• Germany’s Retail Sales (May)
• Germany’s Consumer Price Index (CPI) (Jun)
• Germany’s Unemployment Rate (May)
• US Consumer Confidence (Jun)

Wed, July 1

• Eurozone Harmonised Index of Consumer Prices (Jun)
• US ISM Manufacturing PMI (Jun)
• ECB President Lagarde Speech

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