🌍 FX Market Update: Focus Shifts from Geopolitics to Monetary Policy.

USD – Has recovered some recent losses as tensions in the Middle East ease and oil prices move lower. Markets are now turning their focus to this week’s central bank decisions, with the Federal Reserve taking centre stage tomorrow.

EUR – Remains relatively stable but is largely being driven by dollar movements rather than domestic factors. With few major eurozone catalysts, attention is focused on the Fed and developments in the Strait of Hormuz.

GBP – Trading broadly in line with its peers against the dollar, with key UK inflation, labour market and Bank of England announcements due this week. These releases will be crucial in shaping expectations for future rate cuts.

USD:

The dollar has clawed back some of its recent losses and remains stronger than it traded through much of April and May. As shipping gradually resumes through the Strait of Hormuz and oil prices ease, markets are shifting their attention back to central bank policy.

The Reserve Bank of Australia held rates overnight, while the Bank of Japan raised rates to 1% for the first time in over 30 years. The main focus now is tomorrow’s Federal Reserve decision, which is likely to set the tone for the dollar in the near term.

EUR:

The euro is taking its direction almost entirely from the dollar this week, with EUR/USD only slightly higher than where it ended last week. Aside from this morning’s ZEW survey, there are few major domestic drivers.

Instead, the focus remains firmly on the Federal Reserve and developments in the Strait of Hormuz, leaving the euro likely to trade within a relatively narrow range for now.

GBP:

Sterling has broadly tracked other major currencies against the dollar so far this week. Attention now turns to tomorrow’s UK inflation data, followed by labour market figures and the Bank of England decision on Thursday.

Political headlines have also provided some support, with reports suggesting there is unlikely to be an immediate leadership challenge to Prime Minister Keir Starmer. For now, however, sterling’s direction will be driven primarily by this week’s economic data and interest rate expectations.