FX momentum cools as summer risk heats up
Market overview
FX markets enter the final sessions of June with a more cautious tone, as the dollar’s retreat from one-year highs has done little to restore broader confidence. Risk-sensitive currencies remain vulnerable, while lower energy prices and shifting rate expectations are starting to reshape the near-term outlook across G10.
US equities are lower by around 3% to 6%, but the sharper move has been in mega-cap technology. Alphabet is down 20%, Apple 10%, Amazon 16% and Meta 30%, highlighting how pressure in a handful of crowded names is now driving the broader risk tone.
As July and August bring thinner northern hemisphere liquidity, markets could become more vulnerable to sharper moves. Seasonal caution is also resurfacing, with investors increasingly mindful of the risk that summer trading conditions can deepen any sell-off.
USD: Rate repricing tempers dollar strength
The dollar’s recent rally has paused as markets reassess the path for global interest rates.
A sharp fall in oil prices has triggered a notable unwind in hawkish rate expectations across G10. Pricing for the ECB has moved from around 40bps of tightening last week to roughly 25bps, with similar adjustments seen for the Fed and Bank of England.
The next question is whether lower energy prices feed quickly into inflation, or whether central banks keep a greater focus on growth, wages and labour market resilience. Firm US labour data would likely limit the scope for a sustained dollar pullback.
GBP: Sterling supported, but politics takes centre stage
Sterling retains a constructive tone, particularly against the euro, while it continues to trade above its rising short and medium-term moving averages.
GBP/EUR looks positioned for another test of the 1.1600 resistance area. Repeated challenges suggest that level is coming under pressure, but a decisive daily close above 1.1600 is still needed to confirm a fresh bullish breakout. If achieved, 1.1632 becomes the next key resistance level.
Until then, range trading remains the base case, although the bias still leans modestly in sterling’s favour. Recent rebounds from the mid-June low and Friday’s move higher from 1.1560 suggest buyers remain willing to step in on dips.
UK politics will be closely watched this week, with Andy Burnham due to outline his economic thinking in Manchester. Markets will be sensitive to any signals on fiscal discipline, productivity and future spending priorities. A growth-focused, fiscally credible message could support sterling, while an agenda heavy on spending commitments may put renewed pressure on gilts and the pound.
EUR: CPI and Sintra set the tone
EUR/USD has stabilised above 1.1400 after finding support near 1.1350, but the pair remains more than 2% lower month-to-date and almost 6% below this year’s 1.2081 high from 27 January.
Near-term resistance sits at the 21-day EMA around 1.1490, followed by the 50-day EMA near 1.1569. On the downside, 1.1350 remains the key support level.
This week’s main eurozone risk event is Wednesday’s CPI release. A softer print could limit any move towards 1.1500, particularly if US data remains resilient. ECB President Christine Lagarde’s comments at the Sintra Forum will also be closely watched after last week’s more dovish tone.
Unless the data delivers a major surprise, EUR/USD may continue to grind higher while holding above 1.1400. However, the 1.1500 to 1.1520 area remains a firm resistance zone, with no clear catalyst yet for a sustained break.
Looking ahead
Eurozone CPI on Wednesday will be the key data point for EUR/USD.
The ECB’s Sintra Forum will be closely watched for policy signals from Lagarde, Bailey, Warsh and Macklem.
UK markets will focus on Andy Burnham’s economic speech and any signals on fiscal policy.
US labour data remains important for dollar direction and Fed pricing.
Thin summer liquidity could amplify market moves if risk sentiment deteriorates further.