Dollar in Limbo, Euro on Edge, Pound Riding the Risk Wave.

  • USD lacking direction despite trade news; data, not diplomacy, likely to drive any rebound.

  • Jobless claims and NFP expectations are key to the next USD move amid low rate-cut pricing for September.

  • ECB may tread carefully on FX comments, wary of provoking US reactions and disrupting fragile trade momentum.

  • Euro’s strength is a wildcard, potentially limiting any hawkish tone from the ECB.

  • Sterling benefits from risk sentiment, but upcoming UK services PMI will be a decisive factor for GBP’s next move.

USD: Directionless Despite Trade Buzz

The US dollar has remained unimpressed by both negative and positive trade headlines so far in July. Even with a US-Japan trade deal secured and a potential US-EU deal on the horizon, the greenback isn’t gaining traction. If a short-term USD rebound is in the cards—as we still believe—it’ll need to be driven by economic data, not geopolitics.

This week’s lull in data has possibly allowed investors to re-establish short positions on the dollar. However, today could change the mood: US new home sales, S&P Global PMIs, and especially jobless claims are on deck. The labor market’s recent strength (five straight weeks of declining initial claims) adds importance to today’s print, which could lift expectations for next week’s NFP.

Despite everything, markets are still pricing in 16 basis points of easing for September—a stance we think could shift, creating room for a USD bounce.

EUR: ECB’s Currency Tightrope

Today’s ECB meeting is unlikely to bring rate changes, but the euro’s strength and ongoing trade chatter dominate the agenda. A US-EU deal may mirror the US-Japan pact, potentially leading to a 15% tariff on EU exports.

If policymakers believe a trade agreement is close, the odds of a dovish surprise diminish. Still, the euro’s recent strength could tempt the ECB to make FX comments, especially with inflation remaining soft. But such remarks carry risks, especially with Washington’s sensitivity to perceived currency manipulation.

Market expectations are stable—just one rate cut priced in by year-end—so if the ECB avoids rocking the boat, EUR/USD could push higher, possibly above 1.180. Flash PMIs out before the meeting likely won’t shift the market much unless they surprise significantly.

GBP: Risk-On Rally Gives Pound a Nudge

The pound edged higher against the US dollar on Thursday, driven by improved global risk sentiment rather than domestic data. At around $1.3548, GBP/USD was up 0.2% from the day before.

USD came under pressure as optimism surrounding the US-Japan trade deal encouraged investors to move into riskier assets, dampening demand for the safe-haven greenback.

With little UK economic data midweek, Sterling’s direction was mainly shaped by external sentiment. Though GBP benefitted from a general risk-on mood, it underperformed versus higher-beta currencies.

Looking ahead, Thursday’s flash PMIs for both the UK and the US are in focus. For the UK, the services PMI will be the key figure, as it reflects performance in the country’s dominant sector. A resilient reading could give the pound further lift, while the US PMIs could be critical for short-term USD direction.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.