USD: Strong data keeps gives dollar support
The US dollar has started the week on firmer footing as strong US data reinforces expectations that the Fed will keep policy tight for longer. Plus, with Japanese intervention fading as a near-term market driver, attention has shifted back to fundamentals, which continue to favour the US currency.
July’s ISM manufacturing survey surprised to the upside, with activity expanding at its fastest pace in more than four years. Demand remained strong, production accelerated and firms continued hiring, reinforcing the view that the US economy remains resilient despite elevated rates. Price pressures also remain uncomfortable, supported by tariffs and higher energy costs linked to Middle East tensions.
Oil is providing an additional tailwind. Brent has climbed back towards $85 a barrel as US-Iran negotiations remain fraught, keeping inflation risks and Treasury yields elevated.
Attention now turns to the labour market. JOLTS, ADP and Friday’s payrolls report will determine whether recent hawkish Fed pricing can be sustained. Unless employment data point to a clear deterioration in labour market conditions, expectations for a September rate hike are likely to remain intact.
Bottom line: resilient US growth, elevated energy prices and a still-hawkish Fed backdrop should continue to support the dollar in the near term.
EUR: Momentum stalls at key resistance
The euro entered August with momentum seemingly on its side after a strong end to July. Softer Fed expectations, firmer Eurozone growth and inflation data, and renewed ECB tightening speculation helped push EUR/USD above 1.15, its highest level since mid‑June. The single currency has also continued to outperform many of its European peers, reflecting a more supportive rates backdrop.
However, the rally has lost traction at a critical juncture. After breaking above former resistance near 1.1450, EUR/USD ran into a formidable technical barrier comprising both the downtrend line in place since January and the 100‑day moving average near 1.1570. The pair failed to sustain gains beyond those levels and has since drifted back towards 1.15.
The broader message remains consistent with the narrative that has developed over recent weeks: the recovery looks tactical rather than structural. Last week’s gains were driven primarily by a narrowing in US‑Eurozone rate differentials and a run of stronger‑than‑expected eurozone data. While those factors remain supportive, they do not fundamentally alter Europe’s vulnerability to higher energy prices or the lingering geopolitical risks surrounding global energy supply.
As a result, EUR/USD appears caught between improving near‑term momentum and a still‑challenging macro backdrop. The pair has clearly stabilised after July’s sell‑off, but the inability to break higher at a major resistance zone suggests the market is not yet ready to embrace a more sustained bullish euro view.
For now, the euro remains relatively firm, but the burden of proof sits with the bulls if EUR/USD is to extend beyond the recent 1.15–1.16 range.
GBP: Seasonality starts to bite already
Sterling has started August on the back foot, underperforming most G10 peers as the seasonal headwinds we highlighted last week begin to reassert themselves. With no major UK data releases or political developments driving markets, the pound is once again taking its cues from global rates and broader risk sentiment.
The narrative has shifted notably from earlier in the summer. Sterling’s rally through June and July was underpinned by carry demand, easing political risk following the transition to the Burnham government and relatively hawkish Bank of England pricing. More recently, however, that support has begun to erode. UK yields remain elevated in absolute terms, but the relative picture is becoming less favourable.
A key development has been the narrowing in the UK-Germany two-year yield spread, which has fallen back to its lowest level of the year around 1.54%. The move reflects growing expectations that the ECB will deliver another rate hike in September, reducing part of the rate advantage that had supported GBP against the euro.
This helps explain why GBP/EUR remains under pressure after retreating from July’s one-year highs, while GBP/USD continues to struggle to build on last week’s recovery despite a broadly stable dollar backdrop.
With August historically proving a difficult month for sterling and momentum against its G10 peers having slowed considerably in recent weeks, the pound appears increasingly reliant on external developments rather than domestic fundamentals.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
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Calendar: August 03-07
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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.
