EUR / USD
The bullish EUR/USD outlook is being shaped by several significant macro factors. The Federal Reserve's stance on monetary policy has softened amid mixed economic signals, with core PCE inflation remaining elevated while consumer spending shows signs of weakening.
Meanwhile, the European Central Bank has signalled a pause after its recent rate cut, creating a diverging interest rate dynamic between the two major central banks, supporting the euro. Trade tensions have emerged as a critical factor, with Trump's aggressive tariff policies and July 9 deadline creating uncertainty in global markets. The recent ceasefire between Israel and Iran has reduced geopolitical risk premiums, allowing markets to refocus on economic fundamentals.
The dollar index has fallen to multi-year lows, reflecting growing concerns about US fiscal policy and potential changes in Fed leadership. These factors combined suggest additional support for the currency pair as markets navigate this complex macro environment.
USD / JPY
The global economic landscape is being significantly shaped by the interplay between the Federal Reserve and Bank of Japan's divergent monetary policies, with particular focus on their upcoming July meetings. The Bank of Japan is widely expected to maintain its benchmark rate unchanged at its July 31 meeting, while the Federal Reserve faces mounting pressure regarding potential rate cuts amid mixed economic signals.
Recent trade tensions and tariff implementations have created additional complexity for both central banks, with Japan's manufacturing sector showing signs of contraction and the US experiencing a complex mix of quickening core inflation alongside slowing consumer spending. The upcoming US jobs report, forecasted to show 113,000 new positions in June, could prove pivotal for USD/JPY direction, as any significant labour market deterioration might accelerate Fed rate cut expectations.
Japan's Tankan survey results will be closely watched, with large manufacturers expected to maintain relatively upbeat sentiment despite ongoing trade pressures. The combination of geopolitical tensions, particularly regarding Middle East developments and US-Iran talks, continues to influence safe-haven flows affecting the currency pair.
Market participants are particularly focused on upcoming speeches from both Fed Chair Powell and BOJ Governor Ueda, which could provide crucial insights into their respective policy trajectories. The currency pair remains highly sensitive to macro developments, with the potential for marginal yen weakness in the coming weeks.
GBP / USD
Based on recent developments, the GBP/USD pair faces growing headwinds from multiple macro factors. The Federal Reserve's cautious stance on rate cuts, driven by uncertainty around tariff impacts on inflation, is creating a complex monetary policy environment. Trump's aggressive trade policies, particularly the breakdown in US-Canada trade talks and potential new tariffs, are introducing additional volatility into currency markets.
The Bank of England's conservative approach to monetary policy, maintaining rates steady despite economic pressures, suggests support for sterling in the near term. Recent US consumer spending data showing unexpected weakness, combined with mixed inflation signals, adds another layer of uncertainty to the currency pair's outlook.
A sharp 10% decline in the US dollar since the start of the year, while typically supportive for GBP/USD, is starting to be offset by broader economic concerns and policy uncertainty. This could start weighing on the pound more in the near term.
