Sintra Spotlight: Can Soft Data and Tariffs Push the Dollar Lower?.

  • Dollar Under Pressure: Weak US data and tariff tensions are weighing on the dollar, especially versus the yen and euro.

  • FX Volatility Stands Out: Unlike equities and bonds, FX remains volatile—keeping USD moves in focus.

  • Carry Trade Thriving: Low volatility benefits high-yielders like the BRL and HUF, while structural dollar concerns persist.

  • Sintra in the Spotlight: Powell’s comments at the ECB conference could shift USD sentiment; Lagarde likely to stay cautious.

  • GBP Faces Political Risk: A potential welfare vote defeat could dent sterling amid falling BoE rate expectations.

USD: Data, Powell and Trade Tensions Keep Pressure on the Dollar

The US dollar continues to slide amid a low-volatility backdrop, though FX remains more volatile than equities and bonds. This elevated FX volatility—especially in EUR/USD and USD/JPY—reflects market nervousness around potential tariff moves, particularly with the EU reportedly willing to accept 10% tariffs on US-bound goods and the US leaning on Japan for rice market access. This tension may explain the USD/JPY weakness overnight.

Meanwhile, US fiscal policy developments—like President Trump’s tax bill—are having minimal immediate market impact. Treasury yields and swap spreads remain subdued, and bond markets seem indifferent unless inflation ticks up, auction demand falls, or Trump signals he’ll replace Powell with a more dovish Fed chair.

The carry trade is thriving in this calm environment, with EM currencies like the Brazilian real, Hungarian forint, and Czech koruna gaining 5–6% vs the dollar over the past month. Among G10s, the euro and Swiss franc lead—despite not offering high yields—suggesting investors are chasing liquidity and diversification away from the greenback. Longer-term structural concerns, like potential hedging shifts by major insurers, may still be feeding dollar softness.

Looking ahead, the June ISM manufacturing and JOLTS jobs data could fuel the bearish dollar narrative. Weakness in prices paid or hiring could weigh further on the greenback, while solid demand might briefly slow the slide. The DXY index is teetering on long-term support at 96.50, and Powell’s speech at the Sintra conference could be a tipping point.

EUR: Big Stage for the ECB at Sintra

The euro has led G10 gains in the last month, a welcome development for the ECB. But lasting euro strength will likely depend on deeper structural steps—namely, progress on joint EU debt issuance to rival US assets.

All eyes are on the ECB’s Sintra conference today, where central bank leaders from the US, EU, UK, Japan, and Korea will share the stage. Powell’s tone will be key: any dovish shift would weigh on the dollar and support the euro. Meanwhile, markets still expect one more ECB rate cut this year, and Lagarde is unlikely to challenge that view today.

EUR/USD briefly tested 1.1800 overnight, buoyed by tariff concerns. Technical resistance sits at 1.1900, but the rally may be overstretched. A pullback to 1.1690–1.1720 would likely attract fresh buying.

GBP: All Eyes on Bailey and a Potential Welfare Vote Rebellion

Sterling remains under pressure, with EUR/GBP elevated as BoE rate cut expectations have grown—markets now price in 55bp of easing by year-end. BoE Governor Bailey’s comments today on disinflation and wage growth will be closely watched.

Sterling also faces political risk: Prime Minister Starmer’s welfare reform bill could trigger a backbench rebellion. The government already made £4bn in concessions, but if the bill fails, markets may worry about fiscal slippage and renewed uncertainty. That could push EUR/GBP above 0.86.

*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.