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The US dollar enjoyed a positive Monday despite trade tensions with China.
The dollar is having a moment. It hit its strongest in more than a year on Wednesday, a fifth straight day of gains, and is now set for its best month since last summer. The pound and the euro have spent the week being shoved around by it, with sterling near a multi-month low and the euro back at levels last seen a year ago.
Two things are doing the work, and they are pulling the same way. One is the growing belief that the Federal Reserve’s next move on interest rates will be up, not down. After last week’s meeting, where the message was that inflation now trumps everything else, traders have gone from expecting cuts to betting on a rise as soon as October. Money has followed.
The other is fear. A sell-off in technology shares that began in South Korea, where the main market dropped so sharply on Tuesday that trading was briefly halted, spread to Wall Street and unsettled everything in its path. Gold fell below $4,000 for the first time since the autumn. Bitcoin slipped under $60,000. With nerves jangling, the dollar was the obvious place to hide. Whether the panic lasts is already in doubt, mind you. The chipmaker Micron broke its own sales record after Wednesday’s close, its shares jumped and the rest of the sector went with them, so the great technology scare may yet prove a 48-hour affair.
The pound, for its part, has had nothing of its own to offer. The week’s business surveys showed the economy shrinking again, a second monthly fall in a row, with the services firms that carry the country contracting at their fastest pace since early 2023. The politics is no comfort either, though more on that below.
The euro has its own version of the same trouble. The European Central Bank finally raised rates this month, its first increase since 2023, and the currency promptly fell anyway. Lifting the cost of borrowing into a flagging economy turns out to be a hard thing to sell, and Christine Lagarde has made plain she is in no rush to do it again.
Which brings us to this afternoon. The United States releases the inflation figure the Federal Reserve cares about most, and it is widely expected to mark the high point for the year. A hot number would pour more petrol on the dollar. A soft one might be the only thing capable of cooling it. The data, as ever, gets the final word.
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GBP: Not quite a coronation
Keir Starmer's resignation was meant to clear a path for Andy Burnham to take over around the middle of July, yet it is looking bumpier than a coronation should. Two Labour MPs have refused to rule themselves out, there is talk that Burnham would move quickly to replace the chancellor Rachel Reeves and a reportedly frosty handover meeting with Starmer has done nothing to calm things. Set against an economy going backwards, the pound's relative steadiness against the euro starts to look less like home-grown confidence and more like the euro having troubles of its own.
GBP/USD: the past year
EUR: Least loved of the three
Short on yield and saddled with a slowing economy, the euro is the least wanted of the three big currencies just now. Lagarde's caution means no quick rescue from the European Central Bank, whose next meeting is not until late July. Until then the single currency is largely at the mercy of whatever the dollar does, and this week that has not been kind.
GBP/EUR: the past year
USD: Now comes the test
After a five-day surge the dollar meets its first real obstacle this afternoon, when the United States publishes the inflation gauge the Federal Reserve watches above all others. The reading is expected to show prices at their peak for the year, which would only sharpen the case for higher rates. The risk to the rally is a softer figure, the sort that would let a little air out of an otherwise relentless run.
USD/GBP: the past year
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