Foreign Exchange Analysis - 7th July 2025

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What happened last week?

GBP/USD hit the highest level since 2021 in the first half of the week followed by a steady depreciation in the latter half. Some of the retracement can partially be explained by the near 3% gain across the previous week from 1.338 to 1.377. Another explanation however is the mounting uncertainty surrounding the Chancellor's position which came to a head on Wednesday. What followed was the single largest one day jump in gilt yields since 2022 as investors begin to fear the government loosening the fiscal rules and a fall in Sterling.

What to watch for in the short-term?

The main piece of data to watch for this week is the UK's May GDP data which is released this Friday. The figure is forecast to come in at 0.1% MoM. Whilst the print is unlikely to move GBP/USD materially higher or lower, market participants will be keen to see if April's surprisingly cool MoM release was the beginning of a structural trend of lower growth in the UK.

What about the coming months?

Cable over the medium term will continue to be dictated by the worlds opinion on the global safe haven currency. Traders seem to be fairly split into two camps - whilst some are positioning themselves to benefit from an appreciating dollar in H2, others are expecting another gap lower for the Greenback.

Calendar

Friday 7am | GDP MoM

US Dollar

What happened last week?

The passing of the ‘One Big Beautiful Bill’ last week had

sizeable impacts across US markets at the end of last week. The wide-ranging bill has displeased bond market investors as it is anticipated to add trillions of dollars to the US deficit. The 30-year Treasury jumped nearly 10 basis points on the passage of the bill. There was also strong jobs data out of the US this week as 147,000 new jobs were added surpassing the 106,000 expected. This strikes a blow to the FOMC doves and increased the likelihood of the Fed holding interest

rates in July.

What to watch for in the short-term?

This week, all eyes are on tariffs. The end of the 90-day pause comes on Wednesday or at least it is supposed to... Trump has already threatened an extra 10% on the BRICS and has lined up the EU too. Trying to guess the outcome of these trade negotiation is a fools' errand and so instead we are braced for increased volatility.

What about the coming months?

There are underlying trends that may have significant impact on the Dollar over the coming months. The first is Fed independence, or lack of, which has recently come into focus as the President continues to attack Chair Powell. An early replacement or continued criticism at the July Meeting could put downward pressure on the Greenback. The second, is a weakening Dollar and its impact on inflation.

Euro

What happened last week?

GBP/EUR price action was predominantly driven by news in the UK last week. The single currency made gains on Wednesday and spent the remainder of the week partially reversing them. This morning, weak retail sales data coming out of the EU ( -0.7% MoM for May) could indicate weaker growth over the previous quarter.

What to watch for in the short-term?

The market still remains broadly Euro positive and Dollar negative as shown by the 1 month and 3-month risk reversals on the currency pair. The outcome of the US and EU trade talks this week will likely be the key driver of the GBP/EUR this week.

What about the coming months?

With inflation cooling and rates lowering significantly quicker than it's international counterparts, the Euro's strength in H2 is at the behest of America's actions. If the TACO rhetoric dies down and Trump follows through with widescale European tariffs, this could push European rate expectations higher in the latter half of the year.

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