PCE Steadies Dollar as Burnham Shapes Sterling Mood

PCE data shifted the mood on Fed hike bets, steadying the dollar after a three-day run. Sterling found footing near 1.3200 on Burnham succession speculation. ECB split signals kept the euro range-bound. Yen held near a 40-year low as rate differentials persisted.

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GBP: Pound Navigating Political Transition

GBPUSD 1.3215 | EURGBP 0.8627

Sterling edged higher on Friday with GBP/USD trading near 1.3200. Sterling found measured support as political developments in Westminster drew investors’ attention.

Speculation has shifted towards who will become the finance minister under the expected leadership of Andy Burnham. Burnham, who is widely considered Keir Starmer’s likely successor as Prime Minister. Rachel Reeves is expected to be replaced, and the question of her successor is doing quiet work in the background.

Markets often welcome fresh fiscal clarity during leadership handovers, which can offer sterling a degree of support. Sterling has entered what might be called a political honeymoon window, reflecting more of a temporary phase. The economic realities have not changed, and structural hurdles persist, leaving the single currency lacking a firm floor at the moment.

UK growth pressures persist, fiscal headroom is tight, and any new Chancellor would inherit those constraints in full. Political transitions lift sentiment before they lift fundamentals. EUR/GBP held at 0.8627, reflecting the limited nature of the sterling bid; a pair that historically tends to price political noise faster and more precisely than the wider cable move.

For the GBP/USD pair, the next move is unlikely to come from Westminster alone. The pair still takes its broader direction from the gap between Bank of England (BoE) and Federal Reserve (Fed) expectations. Meanwhile, the EUR/GBP pair continues to reflect the contrast between UK political developments and an increasingly divided European Central Bank (ECB).

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3275, 1.3240 and Support sits at 1.3150, 1.3100

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8670, 0.8645 and Support sits at 0.8590, 0.8555

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EUR: Euro Holds Firm Despite Mixed ECB Signals

EURUSD 1.1408

The EUR/USD edged down to 1.1373 in Friday’s early European session before testing levels near 1.14; caught between two ECB voices pulling in opposite directions, and its relative stability may be concealing more tension than the print suggests.

ECB policymaker Isabel Schnabel struck a hawkish tone. She reiterated on Thursday that the tightening cycle is not complete. Schnabel pushed back against complacency, warning that a recent geopolitical ceasefire, likely referencing developments in the Middle East, should not prompt premature easing. From her perspective, further rate hikes are necessary to bring inflation back to the 2% medium-term target.

ECB President Christine Lagarde struck a different note, adopting a more measured approach. While she acknowledged that geopolitical developments continue to influence inflation, they might not be sufficient to sustain long-term price pressure, suggesting a measured, non-reactive stance.

Those contrasting messages leave the euro without a clear policy anchor. The structural implication is a policy committee that does not yet have consensus on pace. This internal divergence has historically introduced volatility into EUR-denominated pairs, particularly against preferred safe-haven currencies such as the dollar.

The EUR/USD pair in this context reflects a market that is calibrating rather than committing. The pair's next directional leg is likely to follow whichever ECB voice consolidates the upper hand. Policy divergence remains the dominant theme. Every data release now carries greater significance as investors assess which city is more likely to move first: Frankfurt or Washington.

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1425, 1.1400 and Support sits at 1.1330, 1.1285

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USD: The Dominant Narrative Amid Rate Path Uncertainty

DXY 101.41

The dollar index (DXY) held around 101.41 on Friday, steadying after Thursday's pullback, snapping a three-day winning streak that had pushed the index back from its strongest level since May 2025.

The catalyst for the pullback was US PCE inflation data, released Thursday and broadly in line with expectations. The print eased the most acute concerns about a sharper pickup in price pressure and, with it, trimmed the probability of an imminent Fed hike.

Traders now see roughly a ~60% probability that policymakers leave rates unchanged in July, while expectations for another increase later this year continue to fluctuate with new incoming data.

Several Federal Reserve officials reinforced a familiar message. Chicago Fed President Austan Goolsbee acknowledged a "glimmer of hope" on services inflation but emphasised underlying price pressures are still trending in the wrong direction. New York Fed President John Williams echoed that framing, saying inflation is likely to moderate but is not there yet. The takeaway from both is that the Fed is not signalling towards immediate rate cuts, nor is it yet fully signalling rate hikes either. That combination keeps the Fed cautious and leaves another rate increase firmly under consideration and this ambiguity appears to be doing meaningful work on the dollar's near-term direction.

The dollar's pullback, therefore, looks more like a pause than a reversal.

The broader story still points towards policy divergence. US rates continue to sit above most developed economies, supporting demand for the Greenback whenever uncertainty increases or expectations shift back towards tighter monetary policy.

That backdrop continues to influence every major currency pair, particularly GBP/USD and EUR/USD.

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Commodity and Asian Currencies Stay on the Defensive

AUDUSD 0.6895 | NZDUSD 0.5645 | USDJPY 161.8 | GBPJPY 213.19

The Australian and New Zealand dollars struggled to recover after a difficult month.

Lower oil prices have eased inflation concerns and reduced expectations that the Reserve Bank of Australia will need to tighten policy further. That has left the Australian dollar under pressure against the greenback.

The New Zealand dollar also traded lower. Investors continue to expect the Reserve Bank of New Zealand to retain a hawkish bias, although expectations for future tightening have become more dependent on incoming inflation data.

The Swiss franc loses ground as the prospect of higher US interest rates drives capital toward the dollar.

In Japan, the yen stayed close to a 40-year low.

USD/JPY traded around 161.8, keeping intervention risks firmly on the radar after approaching levels not seen since 1986. Tokyo inflation accelerated broadly in line with expectations, reinforcing the Bank of Japan's gradual path towards further tightening. Even so, the wide interest rate gap with the US continues to weigh on the Japanese currency.

China's offshore yuan continued to face pressure from broad dollar strength, while the Canadian dollar recovered modestly as softer US inflation reduced immediate Federal Reserve tightening expectations. The Bank of Canada's latest meeting minutes also signalled policymakers intend to stay flexible as inflation evolves.

Rather than chasing a single headline, market investors appear to be pricing in the widening gap between central banks. As that gap evolves, every inflation release, policy speech and political development is likely to shape the next move across the major currency pairs.

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Current Rate Table:

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Market Lookahead

Mon, 29 Jun

• Eurozone Business Climate and Consumer Confidence

Tue, 30 Jun

• Germany’s Retail Sales (May)
• UK ‘ S GDP Q1

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