FX Market Update: Dollar Weakness Supports GBP & EUR as Risk Sentiment Improves.

• USD – Is under pressure this morning as stronger equity markets and falling oil prices improve risk sentiment, while weaker job openings data has reduced expectations for a September rate hike.

• EUR – Is benefiting from improved risk sentiment, with buoyant equity markets and cooling energy prices providing a supportive backdrop for the single currency.
  

• GBP – Has edged higher against the dollar but remains largely driven by US data, with limited domestic catalysts and ongoing focus on UK fiscal policy.

USD:

The dollar is trading softer this morning as stronger equity markets, falling oil prices and improved risk sentiment weigh on the safe-haven currency. Yesterday’s job openings data added to the pressure, falling by more than 200K in June and prompting markets to scale back expectations of a September rate hike, with only a 57% chance currently priced in.

Attention now turns to today’s ADP employment change figure for July and the latest ISM services index, which is expected to rise to 54.5. However, the main focus remains on Friday’s payrolls report, which could provide a clearer indication of the Federal Reserve’s next policy move.

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EUR: 

The euro is benefiting from a more positive global risk backdrop, with buoyant equity markets and cooling energy prices providing a supportive environment for the single currency. Several lower-tier Eurozone data releases are due today, including PPI inflation and the final PMI revisions.

With limited domestic catalysts likely to drive significant moves, attention remains firmly on US economic data and broader global growth sentiment. The euro could retain some support in the near term if risk appetite remains strong and the dollar continues to soften.

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GBP: 

Sterling has gained around 0.3% against the dollar since yesterday morning, largely reflecting broader dollar weakness rather than a significant shift in the UK outlook. With relatively little UK economic data due, GBP is likely to remain sensitive to upcoming US releases and changes in interest-rate expectations.

Political headlines remain in focus, with Andy Burnham tightening the prison early-release scheme and Reform UK proposing a large-scale military operation to tackle small boat crossings. However, markets are likely to require greater clarity around UK fiscal policy before these developments provide a meaningful catalyst for sterling.

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