Sterling has brief respite after a difficult week
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Daily Currency Update
Sterling rebounded yesterday following a sharp decline on Wednesday, with GBPUSD climbing back above 1.3600. Despite the recovery, investor sentiment remains fragile, largely influenced by Chancellor Rachel Reeves’ political standing and Labour’s perceived fiscal discipline. Wednesday’s turmoil was triggered by Reeves’ emotional appearance in Parliament and speculation over her future, which led to a sharp sell-off in UK government bonds. Ten-year gilt yields surged 23 basis points to 4.68%, before easing to 4.55% after Prime Minister Keir Starmer publicly reaffirmed his support for Reeves.Markets are particularly sensitive to any potential change in the chancellor’s role, fearing it could signal a shift toward looser fiscal policy and increased unfunded borrowing. The UK is currently viewed as one of the most vulnerable developed economies to political and fiscal instability. With no major economic data released today apart from UK Construction PMI, which is expected to have minimal market impact, and U.S. markets closed for Independence Day, GBPUSD is likely to remain rangebound. However, further political developments could quickly disrupt this stability and reignite volatility in both currency and bond markets.
Key Movers
The US Dollar strengthened on yesterday following a robust June Nonfarm Payrolls report and a major legislative win for President Trump, who secured passage of his flagship tax and spending bill. The economy added 147K jobs, beating expectations, while unemployment fell to 4.1%. However, private-sector hiring was weak at just 74K, with government jobs making up the difference. Markets quickly slashed the odds of a July Fed rate cut from 25% to 5%. Despite Trump’s call for Fed Chair Powell’s resignation, analysts noted the jobless rate drop was driven by labour force exits. Strong ISM Services and jobless claims added to USD momentum later in the day.The euro was volatile yesterday, struggling to maintain gains against the US Dollar following a stronger-than-expected Non Farm Payrolls reading. EURUSD fell from near 1.1780 to lows around 1.1720 before partially recovering, ending the day under pressure near 1.1750. The move was largely driven by continued USD strength, while eurozone data offered little support. Germany’s factory orders dropped 1.4% month-on-month, well below expectations. ECB President Lagarde and board member Elderson reiterated their commitment to price stability but provided no fresh policy signals. Although recent euro strength has raised concerns about disinflation, no major ECB policy changes are expected before late summer.
Expected Ranges
- GBP/USD: 1.3610 - 1.3735 ▼
- GBP/EUR: 1.1520 - 1.1615 ▲
- GBP/AUD: 2.0665 - 2.0970 ▲
- EUR/USD: 1.1680 - 1.1790 ▼