Surprise at the top
One of the clear beneficiaries of this year’s U.S. dollar slide has been the euro, which has rallied 14% year-to-date and is now approaching the 1.20 mark. The Swiss franc has also had a strong run, benefiting from its traditional safe-haven appeal. But perhaps the most unexpected standout of H1 has been the Swedish krona, the top performer in the G-10, soaring nearly 17% against the U.S. dollar. What makes the krona’s rally especially noteworthy is that it came despite the Riksbank cutting interest rates again in June, trimming another 25 basis points to bring the policy rate down to 2%. In other words, rate differentials aren’t the driving force here, particularly with U.S. rates still sitting at elevated levels.
Instead, the krona’s strength appears to reflect a broader set of dynamics: a generally weaker dollar, the SEK’s close correlation with the euro, and a long-awaited correction from undervalued levels, as flagged by both the IMF and Riksbank. Add to that speculative inflows and renewed investor optimism around Sweden’s pro-industrial economic strategy, and it’s clear this rally is less about chasing yield, and more about a fundamental realignment.
Shifting focus to the U.S. macro picture as Q3 begins, the latest data from the ISM Manufacturing Index, commonly referred to as the PMI, offers a snapshot of the sector’s health. Based on input from over 300 supply executives across 18 industries, the index reflects five core components: new orders, production, employment, supplier deliveries, and inventories.
In June 2025, the PMI ticked up slightly to 49 from May’s 48.5. While still in contractionary territory, the slight uptick suggests a modest easing in the pace of decline. Notably, the production sub-index rebounded to 50.3 from 45.4, and inventories improved as well. However, other key components, new orders, employment, and order backlogs, saw deeper contractions, pointing to persistent demand-side weakness.
Inflationary pressure also continues to loom. The prices paid index climbed to 69.7, nearing a three-year high. This reflects rising input costs, exacerbated by tariffs. In response, manufacturers appear to be taking a defensive stance, cutting headcount and reducing exposure until there’s clearer visibility on demand conditions.
Although manufacturing accounts for around 17% of U.S. GDP, its trajectory often serves as a broader economic bellwether. And right now, the signals are mixed: while there are pockets of resilience, the sector overall remains under pressure from both cost and demand headwinds. Trade policy uncertainty is also weighing heavily on forward-looking investment and hiring decisions.
U.S. data punches the euro
The EUR/USD’s near 1% rally this week lost momentum during late London trading on Monday (now up ~0.6%), slipping back into the $1.17s as firmer-than-expected U.S. macro data tempered euro strength. JOLTS job openings surged to 7.77 million (vs. 7.30 million expected), layoffs fell, and quits increased—all pointing to a still-resilient U.S. labour market. ISM manufacturing also surprised to the upside, jumping to 49 (vs. 48.8 expected).
Powell’s appearance at the ECB Forum in Sintra didn’t help the euro either. While he didn’t rule out a July cut, he reiterated a data-dependent stance, noting that tariff-related price pressures are likely to emerge in inflation readings later this year. Perhaps markets were expecting more dovishness to transpire from his words – unfortunately they got none of that.
On the eurozone front, Lagarde echoed a similar tone, emphasizing the ECB’s meeting-by-meeting approach, providing no fresh policy signals.
Meanwhile, eurozone inflation edged up to 2.0% (from 1.9%), with core holding steady at 2.3%. The rise followed mixed country-level prints—Spain and France came in higher, while Germany declined. The broader picture suggests inflationary pressures have eased materially from geopolitical highs earlier in the month, as sluggish growth and moderating wage gains now return to center stage, leaving the door open for another ECB cut this autumn.
Looking ahead, barring a sharp rebound in oil prices due to renewed conflict escalation, tariffs remain the key inflation risk. While not negligible, they appear increasingly manageable: both U.S. and the EU remain confident in reaching a deal before the deadline, and the worst-case—50% tariffs on EU goods—seems unlikely for now.
Consumers appear to agree. The ECB’s Consumer Expectations Survey (CES) showed inflation expectations softening more than expected: 1-year fell to 2.8% (vs. 3.1% consensus), and 3-year to 2.4% (vs. 2.5%).
Expect EUR/USD to stay shy of $1.18, perhaps drifting into $1.16, should upcoming U.S. data (ADP today, NFP Thursday) continue to paint the picture of a resilient U.S. labor market.
Dovish signals knock the pound
The pound has been flirting with the $1.38 mark—briefly touching fresh YTD highs of $1.3789 yesterday—until stronger-than-expected U.S. macro data snatched that momentum away. GBP/USD reversed course later in the session, slipping over 0.3% from that high and opening today’s trade in the $1.3730-$1.3750 range.
But it wasn’t just a U.S.-driven move. Bank of England Governor Andrew Bailey’s clearly dovish tone delivered the heavier blow. Speaking first to CNBC and later at the ECB’s Sintra forum, Bailey stated unequivocally that “the direction of interest rates is downwards,” a message that stood in stark contrast to his ECB and Fed counterparts.
He flagged a softening UK labour market and heightened global uncertainty as key drags on investment and growth. His emphasis on downside risks—rather than inflationary concerns—sent a strong signal to markets: easing is on the table.
Rate cut odds for August jumped accordingly, with markets now pricing in an 84% probability—up from 78% prior to his remarks.
Volatility picks up
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.
