Geopolitics and Central Bank Divisions Drive Markets.

USD – Remains resilient, supported by geopolitical uncertainty and safe-haven demand, though a divided Federal Reserve is limiting conviction.

EUR – Has strengthened modestly, benefiting from a softer dollar and renewed confidence following recent geopolitical developments.

GBP – Continues to perform well, although the recent rally appears difficult to fully justify and further gains may be limited.

USD:

The dollar remains relatively well supported by ongoing geopolitical uncertainty, particularly following renewed US strikes on Iran. However, safe-haven demand has been tempered by markets’ belief that tensions may remain contained, limiting broader USD upside. Attention has also shifted to the latest Federal Reserve minutes, which revealed a significant divide among policymakers, with arguments made for both rate hikes and rate cuts. Today’s focus will be on US jobless claims and comments from Federal Reserve officials, which could provide further direction for interest rate expectations.

EUR:

The euro has strengthened against the dollar despite heightened geopolitical tensions in the Middle East. The move appears to have been supported by a softer USD and improved sentiment following President Trump’s more supportive stance towards Ukraine and NATO. Investors will now turn their attention to the European Central Bank’s June meeting minutes for further guidance on the policy outlook. While markets continue to expect a rate cut later this year, the euro could remain relatively supported if the ECB maintains a cautious approach.

GBP:

Sterling has recovered after a brief pullback, with higher UK bond yields and reduced political uncertainty helping to underpin the currency. However, the pound’s recent appreciation, particularly against the euro, has surprised many market participants, with few clear fundamental drivers behind the move. With no major UK economic data due today, attention will instead focus on comments from Bank of England policymaker Sarah Breeden. Without fresh catalysts, sterling’s recent rally may struggle to extend much further.

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