The GBP continued to face downward pressure due to mounting concerns over the UK’s public finances, disappointing economic indicators and dovish signals from the Bank of England. Governor Andrew Bailey even suggested that interest rate cuts could be brought forward if labour market conditions deteriorate further. Although some analysts view the GBP as undervalued, market sentiment remains fragile ahead of this week’s critical inflation and employment reports.
The Euro strengthened against the GBP as markets increasingly priced in aggressive rate cuts from the Bank of England, while the European Central Bank is expected to ease policy only once more. This policy divergence has supported EUR/GBP, which climbed 1.75% in June. However, sentiment toward the Euro remains cautious amid ongoing trade tensions with the US as investors stay alert following tariff threats from Donald Trump despite signs of progress in EU/US negotiations. Looking ahead, upcoming economic data could prove pivotal in shaping the pair’s direction.
The USD faces a deteriorating long term outlook, with analysts expecting a broader decline due to structural headwinds and the prospect of Federal Reserve rate cuts. While upcoming inflation data could offer some short-term support, overall market sentiment remains cautious. In the longer term, trade tensions and widening policy divergence especially with the Eurozone are likely to pressure the USD further, with many forecasts pointing to continued weakness in the months ahead.
