Written by the Market Insights Team
A win for the US administration
Kevin Ford – FX & Macro Strategist
Kicking off Q3, all eyes were on the June nonfarm payrolls report, a key catalyst for short-term USD momentum. The headline data came in stronger than expected, with payrolls up by 147K and unemployment ticking down to 4.1%. The surprise print triggered a selloff in Treasuries, led by shorter maturities, and gave the dollar a short-lived lift. Rate markets quickly adjusted: a July rate cut now looks unlikely, and odds for September have climbed to 70%. The numbers helped ease fears that tariffs and macro uncertainty were stalling job growth, reinforcing confidence in the U.S. economy’s resilience. The S&P500 and Nasdaq ended up the week hitting new all-time highs.
However, the underlying details painted a more uneven picture. Private payrolls disappointed at 74,000, with job gains concentrated in just three areas: government, leisure and hospitality, and private education and healthcare. Together they have driven 87% of net hiring over the past two and a half years. Traditional drivers of economic strength, like manufacturing and construction, remained largely on the sidelines. Meanwhile, wage growth was tepid at 0.2%, and average weekly hours edged down, suggesting some softness beneath the surface.
Despite the upbeat headline, FX markets remain cautious. Ahead of July 9, traders are reluctant to extend long-dollar positions through the long-weekend, until there’s more clarity on the tariff front.
On the fiscal front, the House passed the OBBB. The sweeping $3.4 trillion package that includes deep tax cuts, reduced spending on safety-net programs, and a rollback of clean-energy initiatives championed by the previous administration. President Trump, backed by key GOP factions, is expected to sign the bill on Friday. While Republicans tout it as a pro-growth plan delivering $4.5 trillion in tax relief, Democrats warn it could jeopardize healthcare access for millions reliant on Medicaid. The package’s implications, for households and the broader macro environment, are poised to dominate market headlines in the coming weeks. For markets, the last time fiscal policy took center stage, investor anxiety revolved around long-term deficit concerns and the now-defunct Section 899. This time, with markets in a clear risk-on mode and those specific fiscal drag factors out of the picture, the spotlight is shifting toward the package’s potential to fuel growth and economic expansion.
Built on buzz: the euro rally faces a reckoning
Antonio Ruggiero – FX & Macro Strategist
As said from the start, this euro rally remains, at its core, quite fragile. With little of substance coming from the euro side, the surge has so far leaned heavily on a steady stream of U.S. dollar pessimism.
Yesterday’s stronger-than-expected NFP data pushed the euro’s fragility into full view. Payrolls rose, unemployment fell (see above), and prior months saw modest upward revisions. In response, fresh bets on euro upside were scaled back. One-week risk reversals—used to gauge directional bias—edged toward parity for EUR/USD, and across multiple maturities, slipped into the 10th percentile relative to the past two months of positioning.
The initial—and still dominant—spark behind the euro’s climb has been sentiment: the “Sell-America” trade and “euro-as-the-new-dollar” narrative flooded headlines (though they’ve quieted recently) after Trump unleashed his unpredictable trade agenda. High tariffs, paired with deep uncertainty around implementation, rattled markets and undermined anything stamped “America-made.”
As months passed and the inflationary impact of tariffs failed to materialize, fundamentals gradually joined the rally. A dovish turn from the Fed, with early signals from Bowman and Waller and later Powell’s openness to data-driven cuts, added weight. In other words, what started as sentiment-driven stretched gains began to find support, also, in narrowing U.S.-EU rate differentials. The compounding effect propelled EUR/USD into $1.18 highs.
But now comes the long-awaited NFP—and it adds a twist. Just as markets teetered on branding the Fed dovish, this data stifled talk of early cuts, re-widened rate differentials, and challenged the foundational support pushing the euro up.
And sentiment? That too may be starting to shift. Trade talks are progressing, deals are getting done, and that July 9th deadline is starting to feel “softer” than many had anticipated.
But why? Markets feed on clarity—and they’re slowly beginning to get it. They tend to value improvement over absolutes: yes, tariffs remain above pre-Trump levels, but even partial reductions are being priced in as a win.
So, that $1.20 target for the euro—just how achievable, or even sustainable, is it, despite what many analysts suggest?
Sterling rebounds, doubts linger
Antonio Ruggiero – FX & Macro Strategist
From political drama to Starmer’s assertive push to soothe market nerves—vociferously backing Reeves and dispelling speculation around her position—confidence began to mended swiftly. Reeves then reinforced the tone by stressing her commitment to fiscal discipline, helping to reassure markets further.
Sterling and the FTSE 100 rallied, while gilts led a rebound in European government bonds, with yields falling across the curve.
GBP/USD rose 0.1%, outperforming G-10 peers despite stronger-than-expected U.S. data weighing on the likes of the euro.
The bullish momentum was further supported by Thursday’s surprise from the UK services sector, which saw its fastest growth in 10 months. S&P Global’s Services PMI rose to 52.8 in June from 50.9 in May, topping the flash estimate of 51.3, driven by a rise in new orders.
Overall, while political sentiment turned around faster than many expected—limiting downside risk for sterling—the week still looks set to end on a cautious note.
Concerns remain over the government’s ability to meet its fiscal rule, and the U.S. week, though shortened, ended with upbeat labor market data. That’s refueled expectations of a hawkish tilt from the Fed, keeping underlying support for the dollar intact.
As a result, GBP/USD—down around 0.5% this week—is likely to remain shy of fresh year-to-date highs, navigating below this week’s resistance at $1.3750.
S&P hits new high
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June/July 30-4
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
