USD: Mixed data, lower oil, softer dollar
The US dollar remains under modest selling pressure with the DXY falling below 99.8 as reports of an imminent US-Iran interim agreement to reopen the Strait of Hormuz has dragged oil prices 12% lower this week. The move has eased inflation concerns and reduced expectations that the Federal Reserve will need to tighten policy further in the near term. Last week’s yen intervention and foreign selling of long-dated US fixed-income assets also continue to weigh on the greenback.
Markets have further pared September hike expectations following a softer-than-expected ADP employment report. That said, the rates backdrop remains mixed. While the front end of the Treasury curve has eased, longer-dated yields remain elevated following the July Fed meeting. Chair Warsh stopped short of endorsing higher policy rates to contain inflation, a stance that has encouraged a bear steepening of the curve as investors demand greater compensation for longer-term inflation risks.
The data picture is equally nuanced. Following this week’s strong ISM manufacturing report, the services survey disappointed marginally. More notably, prices paid unexpectedly accelerated while the employment index fell sharply, suggesting progress on the Fed’s inflation and employment objectives remains uneven. By contrast, the S&P Global Composite PMI rose to its highest level since October 2025, pointing to continued resilience in overall private-sector activity.
Overall, lower oil prices and softer employment data have taken some support away from the dollar by tempering Fed tightening expectations. Yet with US growth still holding up and inflation proving sticky in parts of the economy, markets may be moving too quickly to fade the higher-for-longer narrative. For now, the USD correction looks tactical rather than structural.
EUR: Stretching to 7-week high
The euro extended its recent recovery, with EUR/USD pushing above 1.1550, its highest level since mid‑June, as improving risk sentiment boosted demand for the single currency. Reports that the US and Iran have reached a broader agreement to reopen the Strait of Hormuz has weighed on energy prices, easing one of the eurozone’s biggest macro headwinds.
Lower energy costs have prompted a modest dovish repricing of ECB expectations, but the growth implications are arguably more important for the euro. With fears of a renewed energy shock subsiding, investors have become more willing to re-engage with the eurozone growth story, providing the currency with some cyclical support.
That improving backdrop was reflected in the latest PMI data. The Eurozone Composite PMI was revised up to 52.0 in July from 50.0 in June, marking the strongest expansion in business activity in eight months and a return to growth territory for the first time since March. The data suggest the region has weathered recent geopolitical and energy-related disruptions better than many had feared.
The challenge now is sustainability. While improving sentiment and firmer activity data support the euro in the near term, the longer-term outlook still depends on whether lower energy prices persist and whether optimism surrounding US-Iran negotiations translates into a durable reduction in geopolitical risk.
GBP: Global forces, mixed results
Sterling has delivered a mixed performance this week, with moves largely dictated by global macro dynamics rather than UK-specific developments. The pound’s biggest gain has come against the oil-sensitive Norwegian krone as crude prices have fallen sharply on optimism around a potential US-Iran agreement, while GBP has also recovered modestly against the yen. By contrast, sterling has underperformed more cyclical currencies such as the SEK and AUD, reflecting improving risk sentiment and a rotation into higher-beta FX as global equities pushed higher.
Against the dollar, GBP/USD briefly traded above 1.3450 on the back of falling oil prices and stronger risk appetite, although the pair remains slightly lower on the week. The broader picture remains one of consolidation. For much of 2026, cable has oscillated within a broad 1.32-1.35 range, with rallies and sell-offs repeatedly struggling to establish a sustained trend.
GBP/EUR remains anchored around the mid-1.16 area after pulling back from July’s one-year highs above 1.18. That move has brought the cross more closely back into line with interest-rate differentials after appearing stretched earlier in the summer. With ECB pricing firming and the BoE’s rate advantage becoming less compelling, upside momentum has faded considerably.
On the domestic front, the data story was more encouraging. The UK Composite PMI rose to 52.2 in July from 49.3, marking the strongest expansion in private-sector activity since April. Growth was driven by a return to expansion in services and the fastest increase in manufacturing output since September 2024. While the data suggest the UK economy retains some underlying resilience, recent FX price action indicates markets remain more focused on global rates, risk sentiment and energy markets than domestic fundamentals.
Market snapshot
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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.
