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

• Strong US economic data, interest rate expectations and Fed commentary are keeping the US dollar well supported and shaping how investors are positioning in FX markets this month.
• Different central bank approaches, especially between the Fed, ECB and Bank of Japan, are creating more market uncertainty and driving sharper moves in currency markets.

EUR | Euro

The euro weakened against the USD as US economic data improved and interest rate expectations diverged. Markets are now watching for signs of the EU’s economic recovery and further guidance from the ECB and Fed.

The euro fell against the USD throughout June, largely due to better-than-expected US economic data and growing concerns that Eurozone growth may be slowing. Starting June around US$1.1670, the EURUSD touched a 1-year low of US$1.1324 on June 24. This drop was likely caused by expectations of a divergence in policy between the US Federal Reserve (Fed) and European Central Bank (ECB). With falling inflation in the Eurozone, markets are not expecting the ECB to hike interest rates this year. By contrast, the Fed is expected to hike interest rates 1-2 times, hitting 4.2% year-on-year.

The June European Union (EU) Purchasing Managers’ Index numbers hovered around the 50 level, which is the divide for economic contraction vs expansion; and the most recent inflation data released on July 1 saw a faster than expected drop from 3.2% to 2.8%.

Looking ahead, the next European Central Bank interest rate decision is scheduled for July 23 with markets expecting a pause. Markets are also watching ongoing developments in the Middle East, along with the latest EU PMI numbers due July 24, which many are hopeful will show a rebound in confidence after the drop in the price of oil – though this is far from assured.

Expected ranges:

• EUR-USD 1.1200 – 1.1620
• EUR-GBP 0.8510 – 0.8730

GBP | Sterling

The pound fell against a stronger US dollar, as solid US economic data boosted demand for the USD. It later recovered as UK political uncertainty eased and markets looked ahead to key policy decisions.

The GBP-USD trended lower throughout June with the pair touching US$1.3140 on June 24, its lowest level since November 2025. This change is largely due to the USD benefiting from stronger than expected growth from the US, as well as better-than-forecast jobs data, and higher inflation.

Domestically, the big news has been the resignation of UK Prime Minister, Keir Starmer. His decision leaves the door open for the newly elected MP for Makerfield, Andy Burnham, to return to Westminster, where he is expected to take over from Starmer by July 17. While the political uncertainty over Starmer’s departure had been weighing on the pound, the lingering prospect of a messy leadership battle continues to add pressure. However, there appears to be very little pushback from Labour MPs, making Mr Burnham’s promotion to PM likely uncontested. This united front has seen GBP-USD push back up towards US$1.33 as we start July, and GBP-EUR reaching a 1-year high of US$1.1660 on July 1.

Looking ahead, the main event in the UK is anticipated to be the inauguration of Andy Burnham as PM on July 17. Following that, the Bank of England (BoE) interest rate decision on July 30 isn’t expected to bring a policy change. With the price of Brent Crude oil falling back to around $72 a barrel amid a fragile truce between the US and Iran, comments from BoE policymakers about the future path of inflation will likely be an important area of focus.

Expected ranges:

• GBP – USD 1.31 – 1.3515
• GBP – EUR 1.1455 – 1.1750

USD | United States dollar

The US dollar strengthened in June as confidence in the US economy and interest rate expectations rose, outperforming many other currencies. Recent weaker jobs data has cooled momentum, with markets now watching upcoming policy signals.

The US dollar has climbed to its highest level in over a year since President Trump’s liberation day tariffs, supported by rising expectations for higher interest rates and growing optimism about the US economy.

The US Dollar Index (DXY) began June at 98.595 before peaking at 101.568 on June 24, closing the month at around 100.917. The USD outperformed all other major currencies, showing the strongest performances against Scandinavian currencies and the Australian and New Zealand dollars, which fell between 4.7% and 7%. However, US employment data released on July 2 curbed US dollar strength, with the data stating only 57,000 new jobs were created in the period, significantly less than the anticipated amount of 114,000. As a result, the DXY fell by 0.55%.

Looking ahead, the US dollar’s renewed success will likely centre on optimism around the US economy remaining stable, and recently appointed Federal Reserve (Fed) Chair Kevin Warsh’s interest rate decision at the end of July. Mr Warsh’s unexpectedly tough stance on inflation and interest rates as Chair has reshaped market expectations for rates this year. However, J.P. Morgan Global Research still expects the Fed to keep interest rates unchanged for the rest of the year. Assuming the Fed holds rates, economic data remains positive and the AI-driven rally in US equities is sustained, the US dollar could continue climbing.

Expected range:

DXY 100.300 – 101.200

IMPORTANT: This communication has been prepared by marketing/sales personnel of UKForex Limited [CN:04631395] (trading as OFX) (OFX). This commentary is intended for informational purposes only and does not constitute substantive “research” as that term is defined by applicable regulations. OFX is an online foreign currency exchange money transfer service and does not offer any form of margin or speculative trading facilities; and neither it nor its employees are in the business of providing advice to consumers or investors. The information contained herein does not take into account the financial situation or objectives of any particular person and should not be construed as business or investment advice or investment recommendations. Recipients of this communication should exercise independent judgement and obtain advice from their legal, tax or financial advisors.

OFX has taken every reasonable precaution to ensure that any attachment to this e-mail has been swept for viruses. However, we cannot accept liability for any damage sustained as a result of software viruses and would advise that you carry out your own virus checks before opening any attachment.

OFX | 1st Floor, 85 Gracechurch Street, London, United Kingdom, EC3V 0AA