Dollar Drifts, Euro Lifts, and Pound Waits to Pounce.

  • Moody’s downgrades US credit to Aa1 due to unsustainable debt; dollar and Treasuries soften slightly but no panic.

  • Foreign appetite for US assets remains intact—but China trimmed its Treasury holdings by $19bn.

  • Euro supported by political stability in Romania and robust eurozone PMIs; EUR/USD eyes 1.1265 breakout.

  • Sterling coiled for breakout from 19-day consolidation; CPI and PMI data are key to the next move.

  • Markets cautious on rate direction, expecting gradual Fed and BoE cuts but still reacting selectively to data surprises.

USD: Dollar Slips After Moody’s Downgrade
Moody’s cut the US credit rating one notch to Aa1 late Friday, citing years of fiscal mismanagement and ballooning debt. Markets took it in stride—Treasuries softened, equities wobbled slightly, and the dollar dipped. Adding to concerns, a fresh Republican tax proposal could pile on another $3–5 trillion in debt over the next decade.

Despite the downgrade, March’s US Treasury International Capital (TIC) data showed that foreign investors remained net buyers of Treasuries, with official holdings up $26bn. But within that, China’s holdings dropped by $19bn. Investors will be closely watching for April’s TIC data in mid-June.

The data calendar is light this week, though Fed speakers are plentiful. However, markets seem set on two 25bp rate cuts beginning in September. With geopolitical and trade risks in play, expect a risk premium to remain embedded in the dollar. Any FX reference tweaks at Tuesday’s G7 meeting could trigger a sharper USD move.

DXY has technical support at 100.20/25. A drop below could target 99.20.

EUR: Steady Politics, Stable Euro
Politics rarely drives EUR/USD, but a pro-EU win in Romania is seen as a stabiliser for the bloc, in contrast to concerning developments in Poland. The key focus this week is Thursday’s eurozone flash PMIs for May. Business sentiment has been surprisingly resilient; a continuation would likely reinforce euro support as a liquid alternative to the dollar.

EUR/USD needs to break 1.1265 to open the topside.

In the UK, press-fuelled optimism over the UK-EU summit may lead to disappointment if key agreements on food checks or youth mobility aren’t reached. That said, closer UK-EU ties are seen as positive for sterling. A strong outcome could push EUR/GBP below 0.8400 and GBP/USD toward 1.3360–1.3400.

GBP: Spring-Loaded and Waiting to Break
GBP/USD has been stuck in a tight 19-day sideways drift around 1.3281, caught between trend lines that suggest a breakout is brewing—either toward 2025 highs or back down to support at 1.3146.

Sterling could stir midweek with the release of April’s services CPI. A 1.1% m/m rise is expected, pushing annual inflation to 3.3%. Despite the Bank of England’s recent rate cut, it maintains that inflation will soon fall. A hotter-than-expected print, especially in services, could challenge that narrative and push rates—and the pound—higher. Conversely, a weak print might reignite talk of further rate cuts and pressure GBP.

Beyond inflation, Thursday’s PMI data could provide a broader economic pulse, particularly on April’s employment tax changes and wage hikes. The PMI also gives a forward view on inflation and may hold more market-moving potential than the CPI itself.

For now, markets remain cool-headed, fading immediate data reactions in favour of the broader global backdrop.

*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.