USD Under Pressure, Euro Gains on Dollar Weakness, Sterling Faces Political Headwinds.
USD – The dollar starts the week on the back foot as weak labour data and improved risk appetite erode safe-haven support, with Fed speakers and key US data now in focus.
EUR – The euro is firmer primarily on dollar weakness, continuing to benefit from capital rotation away from USD assets and the depth of eurozone bond markets.
GBP – Sterling is under pressure as political uncertainty intensifies, with leadership risks around Prime Minister Starmer weighing on confidence and raising fiscal concerns.
USD:
The US dollar has opened the week under pressure, with several headwinds weighing on sentiment. Weak labour market data at the end of last week has undermined confidence in the near-term growth outlook, while the strong rebound in global equities on Friday is now reversing some of the defensive positioning that previously supported the dollar. Markets will later focus on remarks from Fed policymakers Waller and Miran, both of whom argued for an immediate rate cut at the previous meeting. Looking ahead, the macro calendar intensifies, with the postponed non-farm payrolls release tomorrow followed by Friday’s CPI data likely to set the tone for the rest of the week.
EUR:
The euro is firmer this morning, largely reflecting renewed softness in the US dollar rather than any euro-specific catalyst. Since President Trump began his second term, capital moving out of the dollar has tended to favour euro-denominated assets more than other major alternatives. Should Chinese financial institutions follow through on efforts to cut back their US Treasury holdings, the eurozone stands out as an obvious destination given the depth and liquidity of its sovereign bond markets. The economic calendar is light today, limited to an investor confidence release, although attention will also be on comments from ECB policymakers Lane and Nagel, as well as President Lagarde.
GBP:
The pounds underperformance comes as political risk moves to the forefront, with a pivotal week for Prime Minister Starmer’s leadership. His attempt to draw a line under controversy surrounding the appointment of Peter Mandelson as US ambassador has done little to repair relations within his party, and the resignation of his key aide, Morgan McSweeney, over the weekend has further weakened his standing. Reflecting this, betting markets now imply around a 60% probability that Starmer will lose his position by mid-year. For markets, the concern is not just the rise in political uncertainty, but the possibility that a leadership change could bring a more left-leaning administration with a looser approach to fiscal discipline.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 12:00 | ECB's President Lagarde speech | - | - |