FX Market Update: Dollar Holds Firm as Eurozone Weakness and UK Data Shape Currency Outlook.

• USD – Remains relatively firm, supported by hawkish Fed commentary and resilient rate expectations, though recent price action has been choppy and range-bound.

• EUR – Is under increasing pressure as weak eurozone economic data raises doubts over the ECB’s ability to maintain an aggressive hiking path.
  

• GBP – Has performed well this week overall, but softer retail sales and rising public borrowing may limit sterling’s upside momentum.

USD:

The dollar has traded in a choppy range over recent sessions, with an early rally triggered by weak eurozone PMI data fading by the close yesterday. Markets continue to react to the more hawkish tone from the latest Federal Reserve minutes, alongside comments from several Fed officials which have reinforced expectations that further US rate hikes remain possible this year. Attention today will turn to comments from Federal Reserve Governor Christopher Waller, whose views are closely monitored by markets for guidance on the future rate path. Investors will also focus on the final University of Michigan consumer sentiment reading this afternoon for further insight into the health of the US consumer and broader economic outlook.

 

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EUR: 

The euro is facing growing pressure as eurozone economic activity continues to weaken, potentially challenging the tightening path currently priced in by markets for the European Central Bank. The latest eurozone composite PMI reading fell to 47.5, signalling further contraction across the bloc, with France in particular posting notably weak data. As growth concerns intensify, markets may begin reassessing expectations for additional ECB rate hikes. If this trend persists, the euro could struggle to maintain support, particularly against a dollar still underpinned by relatively stronger economic resilience and higher yield expectations.

 

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GBP: 

Sterling has enjoyed a relatively solid week, gaining 0.9% against the euro and 0.8% versus the dollar. However, this morning’s UK retail sales data disappointed, falling -1.3% month-on-month compared with expectations of -0.6%, reflecting a steeper-than-expected pullback following March’s fuel-driven increase. In addition, UK public borrowing for April came in above forecasts at £24.3bn, adding to concerns around the fiscal backdrop. While sterling has remained supported in recent sessions, softer domestic data may temper further upside unless broader market sentiment improves.

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