FX Market Overview – Dollar Supported by Hawkish Fed Signals as European Growth Concerns Weigh on EUR and GBP.

• USD – Remains relatively supported by hawkish Fed expectations and resilient market pricing for another rate hike, though geopolitical headlines and mixed global growth signals are creating short-term volatility.

• EUR – Is under pressure following weak French PMI data and softer eurozone growth momentum, although Germany’s figures offered limited relief.
  

• GBP – Has regained some ground recently as political concerns ease, but upcoming UK PMI data and Bank of England commentary are likely to determine whether sterling can sustain the recovery.

USD:

The dollar softened slightly yesterday amid headlines suggesting the US and Iran may be moving closer toward a deal, reducing some safe-haven demand. However, weaker European growth indicators this morning have helped the greenback recover much of those losses. The Federal Reserve minutes released yesterday struck a hawkish tone, with several policymakers indicating that the next likely move in rates could still be higher. This has reinforced market expectations for another rate hike before year-end.

Attention now turns to today’s US PMI data for May, expected at 51.8, alongside this week’s jobless claims figures, both of which could influence expectations around the Fed’s next move and near-term dollar direction.

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EUR: 

The euro has started the session on the back foot following disappointing French PMI figures this morning. France’s composite PMI dropped sharply into contraction territory at 43.5, well below the key 50.0 level and significantly weaker than expected. Germany’s reading provided some reassurance shortly afterwards, printing at 48.6 — still below 50.0 but marginally ahead of forecasts.

The wider eurozone PMI consensus stands at 48.8, reinforcing concerns around slowing regional growth momentum. At the same time, markets have pared back expectations for a third European Central Bank rate hike later this year, which is also weighing on the single currency. Unless incoming data stabilises, the euro may continue to struggle for upside momentum in the near term.

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GBP: 

Sterling has been gradually recovering over the past four sessions as the recent politics-driven selloff appears to have lost momentum. Market concerns surrounding Keir Starmer’s leadership have eased for now, while the Prime Minister has shown no indication of stepping down, helping to steady sentiment toward the pound.

Focus now shifts to this morning’s UK PMI data, which could prove particularly important following the weak French numbers earlier today. Investors will also be monitoring speeches from Bank of England policymakers Alan Taylor and Governor Andrew Bailey for further guidance on the outlook for rates. While sterling has stabilised in the short term, markets are likely to remain sensitive to both economic data and political developments.

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