US dollar torn by contrasting forces
Just like the CPI release, offsetting effects—specifically, a sharp decline in the service component—yielded a calmer picture of PPI pressures in the US yesterday. At first glance, markets reacted to what was plainly visible: PPI final demand and its core version remained unchanged in June compared to the previous month.
The immediate response was a drop in yields across maturities, and traders modestly increased bets that the Fed may cut rates in September.
However, a closer look at the goods component—most directly impacted by tariffs—shows that prices excluding food and energy rose 0.3% from 0.1% in May.
Meanwhile, rising industrial production and strong earnings from major banks buoyed risk appetite, pushing the S&P 500 near its record high. This adds to a growing body of data suggesting that stakeholders in the US economy are managing tariff-related turbulence effectively.
As markets digested the complexity of the PPI report alongside a batch of optimistic data prints, the real blow to the dollar came unexpectedly, hitting dollar crosses hard. A White House official revealed that President Trump is likely to fire Federal Reserve Chair Jerome Powell soon, with discussions on the matter reportedly taking place during a meeting with congressional Republicans.
Later in the day, however, President Trump clarified that he was “not doing anything” to remove Jerome Powell—calming markets and helping the dollar retrace some of its losses after dropping more than 0.8% on the initial news.
Yet another move à la Trump – erratic, provocative, and somewhat cliché—but unlike tariffs, able to dent the fragile DXY recovery, leaving the index down 0.3% on the day.
Looking ahead, risks to the dollar remain finely balanced. On one side, dollar-positive forces prevail: a repricing of hawkish rate expectations, resilient macro data, and fading tariff noise. On the other, lingering concerns over the Fed’s independence, and, more provocatively, the anticipation of a decidedly dovish and perhaps more politically pliable replacement for Powell, add downside tension.
Euro catches a breather on renewed dollar doubts
What a roller-coaster day for the euro yesterday. Buffeted by the dollar’s volatile swings, it plunged to a three-week low before rebounding nearly 1% all in just one day. The latest headlines surrounding Powell’s career hanging by a thread sent it briefly back into the $1.17 zone, though some of the gains were quickly pared after President Trump denied that he is considering firing the Fed Chair.
While fears quickly faded, the mere suggestion sparked fresh reminders of this administration’s unpredictability. In that context, the euro re-emerged as the go-to liquid alternative and still closing the daily session higher (+0.3%).
Against the pound, the euro rose to a three-month high, buoyed by fresh turmoil out of Washington. The surge in euro demand outweighed the pound’s support from a strong UK inflation reading earlier in the day, which has posed a challenge to the Bank of England’s (BoE) dovish tone.
UK jobs data compounds stagflation fears
Markets remain laser-focused on the UK labour market with Thursday’s jobs data intensifying speculation over whether the BoE may accelerate its easing cycle. Released earlier this morning, wage growth excluding bonuses came in at 5% for the three months to May – slightly hotter than expected – while unemployment edged up to 4.7% from 4.6%. Due to increased UK stagflation, sticky wage growth and services inflation, front-end gilts and the British pound are likely to remain under pressure.
Revisions to May’s payroll data could soften the blow though, showing a drop of 25,000 rather than the previously reported 109,000. However, June saw a further decline of 41,000, bringing the three-month change in employee numbers to around -90,000. Jobless claims were also revised upward for May, painting a marginally better picture.
Yet the broader trend remains troubling. A monthly survey from KPMG and the Recruitment and Employment Confederation earlier this week revealed the sharpest drop in UK hiring in nearly two years, underscoring the lingering impact of higher payroll taxes.
Compounding concerns, the latest UK inflation report released yesterday, surprised to the upside. Ordinarily, stronger inflation would support sterling by limiting the BoE’s room to cut rates. But in this case, the data point to a stagflationary environment – where growth stagnates while inflation rises – undermining the pound’s fundamental appeal.
Sterling’s recent price action reflects this unease. GBP/USD briefly bounced yesterday but stalled at its 50-day moving average near $1.35, which now appears to be acting as resistance. The pair is on track for a third consecutive weekly decline, down over 2% so far in July. While the broader uptrend from January’s $1.21 low remains intact, the 21-day moving average is turning lower, suggesting increased vulnerability to a deeper pullback. A test of the 100-day moving average at $1.3267 could mark a decisive shift in trend and confirm a breakdown in the 2025 rally.
The pound is also losing ground against the euro despite rate differentials and the VIX suggesting the pair should be higher. GBP/EUR has declined around 1.5% in July, slipping toward €1.15 as the common currency continues to benefit from stronger growth prospects, robust capital inflows, and reduced expectations for further ECB rate cuts.
GBP/USD has dropped 1.5% since last week
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: July 14-18
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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.
