Dollar sets sights on monthly gain
The US dollar index is poised to notch its first monthly gain of 2025, clawing back ground after enduring one of its steepest opening-year slides in decades. Global risk appetite remains buoyant heading into the final week of July, with investors brushing aside mounting policy and geopolitical noise in favour of momentum-driven optimism. US equities continue to lead the charge, as the S&P500 registered its sixth record high this month on Friday — fuelled by resilient macro data, cooling recession fears, and hopes of a soft landing. The tech-heavy Nasdaq and cyclical sectors are also outperforming, reinforcing the risk-on tone.
Cryptocurrencies are joining the rally, with Altcoins rallying in the wake of Bitcoin hitting fresh all-time highs, buoyed by increasing institutional demand, passage of stablecoin regulation, and broader capital rotation into digital assets. This upbeat sentiment is particularly notable given the undercurrent of volatility risks: from Fed independence concerns, aggressive US trade policy resets, and geopolitical friction, to the lingering uncertainty around global demand elasticity under higher tariffs. Yet for now, markets seem content to tune out the noise, leaving the US dollar searching for direction amid consolidation and mixed data signals.
Importantly, last week’s stream of solid US data — including stronger-than-expected retail sales, and a rebound in consumer sentiment — has helped soften USD selling pressure. These figures reinforce the narrative of a resilient US economy and have kept Fed rate cutting bets at bay, providing the buck a sustained attractive yield advantage over its peers.
This week, the data docket is relatively light, but flash PMIs will be front and centre because they offer the earliest real-time snapshot of global economic momentum — and in a market riding high on risk appetite, they could signal a crack in the narrative or a fresh catalyst for continuation. US equities will also look to build on July’s bullish momentum as earnings season heats up. The Magnificent Seven kick things off, with Alphabet and Tesla set to report this week. Strong guidance from either could reassure markets that corporates remain robust despite rising tariffs and sticky inflation.
Pound eyes stabilisation, more data due
Sterling underperformed its G10 counterparts last week, weighed down by persistent concerns over UK stagflation — where rising inflation coincides with sluggish growth. Despite climbing yields, the pound failed to find meaningful support, as markets viewed the backdrop as macroeconomically toxic rather than yield-positive.
While GBP/USD briefly rallied on renewed Trump-Fed drama, momentum fizzled out near the 50-day moving average around $1.35, which now acts as a clear resistance barrier. The pair notched its third straight weekly loss, shedding over 2% month-to-date in July. Technically, the broader rally from January’s $1.21 low remains alive, but cracks are forming: the 21-day moving average is bending lower, flagging downside risk and reduced trend conviction. A test of the 100-day moving average at $1.3267 could be pivotal. A sustained break below might signal trend exhaustion and affirm a breakdown of the 2025 bullish structure — though $1.30 still offers a sturdy support zone for now, plus the daily relative strength index signals slightly oversold conditions, which could help stabilise sterling in the short term.
This week’s UK data calendar offers a fresh pulse check on economic momentum and policy direction, with Flash PMIs (Thursday) and Retail Sales (Friday) in focus. Services are expected to hold steady, underscoring consumer resilience, while manufacturing continues to lag — a divergence that could sharpen market expectations for the Bank of England’s (BoE) next move. Retail sales, still volatile month to month, could provide upside support for sterling if paired with firm PMIs.
Governor Andrew Bailey’s testimony on Tuesday will also be closely watched for clues ahead of the BoE’s August meeting, where a 25bp rate cut is almost fully priced in. With business confidence indicators rebounding and inflation proving stickier than anticipated, markets are positioning for a more cautious easing path. In this environment, GBP/EUR could converge toward levels more consistent with relative rate differentials and implied volatility signals. If Bailey maintains a measured tone and the data delivers, sterling could regain footing across majors.
The euro’s search for substance
The euro marked its second consecutive weekly decline last week, falling 1.3% against the U.S. dollar so far this month.
Two key events offered brief support to the currency pair, but also underscored its need for a more substantive catalyst to drive sustained momentum beyond mere speculation. The week’s narrative centered on the Fed rather than trade: a near-1% rally on Wednesday followed reports of Powell’s potential dismissal, while Friday’s 0.5% rise came in response to Waller’s strongly dovish remarks hinting at a possible rate cut as early as July. These moves highlighted how EUR/USD remains driven by Fed expectations, with the ECB relatively dormant by comparison.
Beyond signs of dovishness, last week’s euro surges reflect investors’ lingering unease over the unpredictability of U.S. policy—an uncertainty that continues to underpin euro demand. Still, both rallies were quickly followed by sharp reversals, suggesting that while dollar-related concerns remain, investors are seeking more concrete catalysts to sustain bullish euro momentum.
Looking ahead, with the Fed now in its blackout period and meaningful trade developments unlikely before month-end, short-term risks for EUR/USD tilt bearish. The Fed’s hawkish stance seems locked in as it goes quiet, while the ECB’s hawkish position faces growing—though not yet prevailing—dovish pressures.
Keep an eye on this week’s ECB rate meeting. It’s likely too early for any clear indication of a cut, especially given that trade negotiations remain unsettled and tariff levels are still uncertain.
Sterling pares its recent losses
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: July 21-25
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.
