The below key drivers are likely to impact investor risk sentiment and FX markets in June:

• Geopolitical tensions and higher oil prices are driving risk aversion, supporting the US dollar and weighing on risk-sensitive currencies like AUD and NZD.
• Central bank decisions and interest rate expectations are in focus, with upcoming policy meetings shaping currency direction amid ongoing inflation concerns.
• US dollar strength and uneven global growth are dominating FX markets, as strong US data contrasts with softer or uncertain outlooks elsewhere.

EUR | Euro

The euro’s early gains faded as global tensions and inflation concerns strengthened the US dollar, with uncertainty likely to limit any support from upcoming interest rate decisions.

The euro saw moderate volatility at the start of May with EUR-USD at US$1.1732, rising to a peak of US$1.1797. The early gains were driven by somewhat resilient 0.3% Q1 GDP growth in Germany. However, this early optimism was short-lived as the pair began a steady unwinding as spikes in global oil prices owing to the Middle East conflict stoked inflation fears and saw investors rotate back into the US dollar.

EUR-USD reached a monthly low on May 21st at US$1.1577 after European Flash Manufacturing and Services Purchasing Managers’ Index (PMI) both came in lower than forecasted at 51.4 and 46.4 respectively. Since then, the pair has moved sideways in a narrow band with little positive outlook on both the data front as well as the geopolitical front. The EU’s Consumer Price Index (CPI) Flash Estimate print on June 2 came in as forecasted at 3.2% (year over year), while Core CPI came in at 2.5%, only marginally above the forecasted 2.4% (year over year), both prints not really moving the needle on euro strength. However, EUR-USD fell 0.77% on June 5 due to much stronger than expected employment data out of the USA.

Looking ahead, the European Central Bank will meet on June 11 to set interest rates, with the market anticipating a 97% chance of a 25-basis point hike from 2% to 2.25%. This potential hike could strengthen the euro, however, the strength of the gain will likely be curtailed if the Middle Eastern conflict persists.

Expected ranges:

• EUR-USD 1.1550–1.1850
• EUR-GBP 0.8610–0.8750

GBP | Sterling

The pound has been pulled between political uncertainty and global tensions, with recent economic improvements offering some support. Looking ahead, geopolitics and UK politics are likely to remain the key drivers.

At the beginning of May, GBP-USD rose to a peak of US$1.3658 before falling to a low of US$1.3302. The fall was driven by a combination of surging global energy costs, local election instability from Prime Minister Keir Starmer and the Mendelson saga, and safe-haven flows into the US dollar. The pair mildly recovered after this low, hovering between US$1.34-US$1.35, as speculation surrounding Starmer’s leadership cooled and the prospects of a diplomatic solution for the US-Iran conflict increased. Furthermore domestically, the pound saw strength through the IMF raising the UK Growth forecast for 2026 to 1% (up from 0.8%), and lower than expected inflation with a Consumer Prices Index (CPI) print of 2.8%. However, GBP-USD fell 0.63% on June 5 due to much stronger-than-expected employment data out of the USA.

Looking ahead, the Middle Eastern conflict remains a key driver of the pound’s value. Domestically, political turmoil could also drag the pound lower. On June 18, the Makerfield by-election will take place, with Labour leadership hopeful Andy Burnham appearing keen to re-enter parliament. Additionally, on June 18 we will see the next Bank of England interest rate decision. With rates currently at 3.75% and inflation arising from the Middle East conflict trickling through to the UK, higher rates this year are likely. However, Governor Andrew Bailey recently said the bank is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak. Assuming interest rates remain constant, Andy Burnham wins in Makerfield, and the Middle East conflict persists, the GBP-USD could trend down towards US$1.33.

Expected ranges:

• GBP-USD 1.3300–1.3750
• GBP-EUR 1.1450–1.1610

USD | United States dollar

The US dollar gained strength on the back of solid economic data and expectations of higher interest rates, though any signs of slowing growth could ease its momentum.

The US dollar has strengthened in the last month against most major currencies, supported by resilient economic data and rising expectations that the Federal Reserve (Fed) will likely keep interest rates higher for longer. The USD gained against the euro, British pound, Canadian dollar, and Japanese yen, with USD-JPY moving back above the 160 level.

A key catalyst was the May non-farm payrolls report, which showed the US economy added 172,000 jobs, nearly double market expectations, while the unemployment rate held steady at 4.3%. The stronger jobs release reinforced confidence in US economic growth and reduced expectations for near-term Federal Reserve interest rate cuts.

Looking ahead, the US dollar is likely to remain well supported if economic data continue to outperform and inflation remains sticky. However, any signs of slowing growth or a shift toward Fed easing could trigger a modest pull-back against major peers.

Expected range:

• DXY 99.751–100.214

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