Dollar lifts as China–US trade pact gains traction

The US Dollar has emerged as the strongest performer among G10 currencies so far this week, driven by renewed optimism over trade discussions between Washington and Beijing.

Officials from both nations have settled on a plan to implement the agreement reached in Geneva this past May. The arrangement is intended to restart the exchange of sensitive goods that had been largely stalled.

Under the terms of the new plan, China will accelerate deliveries of rare earth elements, while the United States is expected to ease certain export restrictions on advanced technologies. Final approval of the framework still hinges on the endorsement of Presidents Donald Trump and Xi Jinping.

“We can now start working towards productive trade and growth,” commented US Commerce Secretary Howard Lutnick, following meetings with Chinese representatives in London.

The Geneva deal was initially seen as a clear sign that the worst of the trade tensions had passed, offering support to the Dollar. However, momentum faded when both countries hesitated to commit to essential elements of the accord.

Despite those earlier setbacks, the current signs of progress have boosted the Dollar, with GBP/USD easing back to 1.3473 after touching 1.3616 the previous week.

Investors are likely to welcome the London developments, potentially easing some of the heavily negative sentiment that has built up around the US currency in recent months.

Still, markets are expected to remain wary, given the number of prior breakdowns in negotiations. While the immediate outlook may appear more stable, the longer-term trajectory for the Dollar remains uncertain, with sterling potentially regaining ground as underlying weakness in the Greenback persists.

Euro drifts as momentum fades and uncertainty lingers

The euro has found it difficult to gain meaningful ground above the $1.14 mark, with the currency pair slipping back into the $1.13 range over the course of the week. Without a fresh driver from either trade developments or economic data, the euro looks set to stay confined within a narrow range for now.

Looking ahead to the end of the week, the balance of macroeconomic influences appears slightly tilted towards the downside, and the euro may well end the week still trading below $1.14. One factor that could help shift momentum in the euro’s favour is the ongoing uncertainty surrounding the US-China trade deal. Although both sides have outlined a provisional framework, no follow-up meetings are on the calendar, and the plan still requires approval from Presidents Trump and Xi. As a result, markets remain hesitant to commit in either direction.

On the economic data side, had last week’s US employment figures fallen short of expectations, today’s stronger-than-anticipated inflation data might have provided a clearer boost for the euro. Instead, the inflation surprise may now be interpreted as a signal of resilience in the US economy, rather than evidence of stagflationary pressures.

Attention will soon shift to inflation readings from Spain, France and Germany, due on Friday. If those numbers disappoint, it could further reinforce concerns about weak price growth in the eurozone, adding to speculation about future interest rate cuts by the European Central Bank.

So far this month, the euro has risen a little over 2% against the dollar, but the pace of gains has slowed sharply compared to the double-digit increase seen over the year to date. This suggests that recent strength has been largely driven by shifting sentiment towards the US, rather than strong independent demand for the euro itself. With US data still offering a mixed picture and no major deterioration in sight, appetite for betting against the dollar may remain subdued.

Sterling loses ground as rate cut bets gain traction

After dipping on the back of disappointing UK employment figures, the pound managed a modest rebound from its 21-day moving average, suggesting that the broader short-term upward trend is still intact for now. Even so, currency options markets show traders growing more cautious about sterling’s prospects. Following last week’s peak near $1.3616 — the highest in three years — GBP/USD has been on the back foot, with the mid-$1.34 range once again acting as a critical level of support.

Sterling appeared set for its sharpest daily decline against the dollar in nearly a month after the latest jobs report revealed the largest drop in employment since 2019. Alongside a slowdown in wage growth, the data has strengthened expectations of a rate cut in August, with markets increasingly factoring in a second reduction before year-end. This has pulled UK government bond yields lower, putting renewed pressure on the pound across major currency pairs.

Weaker rate expectations and sliding gilt yields have taken some of the shine off the pound, which also fell to its lowest level against the euro in nearly a month. Traders are now watching support near the 50-day moving average, just below €1.18.

Still, sterling’s downside may be cushioned by its relatively high yield compared to other major currencies. With demand for carry trades on the rise — especially as global risk appetite improves and volatility subsides amid tentative progress in trade talks — the pound could remain supported even as interest rate expectations shift.

Pound slips as UK wage growth cools and unemployment rises

The Pound weakened slightly against both the Euro and the US Dollar after the latest wage data came in below market expectations.

Figures from the Office for National Statistics showed that total average earnings, including bonuses, rose by 5.3% in April compared to a year earlier. This was lower than the anticipated 5.5% and marked a slowdown from the 5.6% recorded in March. Excluding bonuses, pay growth stood at 5.2%, also a decline from March’s 5.5% and under the forecasted 5.4%.

The unemployment rate crept up to 4.6% from 4.5% as the number of pay-rolled workers in the UK fell by 78,000 over the three months to April—a decline of 0.3%.

Meanwhile, job vacancies dropped by 63,000, or 7.9%, between March and May, totalling 736,000. This was the 35th consecutive quarterly fall in openings. The average number of unemployed people per vacancy rose to 2.2 between February and April, up from 1.9 the previous quarter.

Together, these developments suggest the labour market is gradually losing momentum, pressured by rising business costs linked to higher taxes and increases to the minimum wage. This environment may lead to slower wage growth in the months ahead, which would ease inflationary pressures.

On the back of this data, the Bank of England could be inclined to lower interest rates on two more occasions before the year ends. Before the figures were released, markets had priced in a total of 35 basis points in rate cuts—essentially one full cut and a partial second. Market expectations have now shifted, increasing the likelihood of two full reductions.

This change in outlook triggered a mechanical reaction in currency markets, leading to modest declines in the Pound. Sterling fell to 1.1850 against the Euro from 1.1870 shortly after the data release. Against the Dollar, it slipped to 1.3522 from 1.3540.

However, foreign exchange markets currently appear less reactive to shifts in UK interest rate expectations. As such, the impact on Sterling is expected to remain limited. Broader international trends, particularly those stemming from US policy and global trade dynamics, are likely to continue setting the tone.

Cautious markets steady ahead of US-China trade talks

Market participants showed little appetite for bold moves as they waited for further developments in trade discussions between the United States and China, which are due to resume in London later today.

In the United States, the only notable release on the economic calendar is the NFIB Small Business Optimism Index for May. With no major data due, financial markets remained largely quiet as the week got underway. Wall Street’s leading indices finished Monday with only slight gains, while the US Dollar Index edged lower.

By Tuesday morning in Europe, the US Dollar Index was trading just above the 99.00 mark, showing a modest uptick. Futures tied to key US equity benchmarks showed minimal movement, suggesting a lack of fresh drivers for risk sentiment.

The euro-dollar pair, after posting a slight increase on Monday, remained confined to a narrow range near 1.1400 in European morning trading on Thursday.

Elsewhere, China’s Vice President Han Zheng expressed a willingness to strengthen ties with the European Union, highlighting the Chinese government's openness to broader cooperation and deeper engagement with the EU.

Later in the day, attention will turn to the release of the Sentix Investor Confidence Index for June, which is the main item on Europe’s economic schedule.

Markets hold steady as trade talks resume and job data reshapes expectations

This week, investor attention is fixed on the renewed discussions between the United States and China, taking place today in London. On Friday, US President Donald Trump stated that a high-level American team would hold discussions with Chinese officials. Beijing later confirmed over the weekend that Vice Premier He Lifeng will take part in the talks. The latest round of negotiations followed a phone call between President Trump and President Xi on Thursday, during which Trump said the discussion centred largely on trade and had led to "a very positive conclusion for both countries". Chinese state news agency Xinhua reported that Xi urged the United States to "withdraw the negative measures it has taken against China". It marked the first direct conversation between the two leaders since the trade dispute began in February.

At the same time, the forthcoming inflation figures from the US — including the Consumer Price Index (CPI) and Producer Price Index (PPI) for May — are expected to influence market sentiment. Should core CPI remain stubbornly high, hopes for interest rate reductions at the 18 June Federal Reserve meeting may be deferred. A stronger-than-anticipated PPI reading could point to companies continuing to pass on increased costs to consumers, reinforcing the idea that inflation is proving more persistent than policymakers would like. In such a scenario, the Federal Reserve is unlikely to shift its position, potentially keeping Treasury yields elevated and limiting any significant decline in the US dollar.

Last week, market participants were preparing for indications of a slowdown in the US economy. However, that outlook changed on Friday following the release of nonfarm payroll data, which came in stronger than expected. The US dollar, which had been under pressure for most of the week, found renewed strength after the employment figures were published. Despite some downward adjustments to previous months’ data, the latest report was seen as further evidence of a labour market that remains surprisingly resilient. This came despite earlier signals of weakness, including disappointing ADP payrolls, a subdued reading from the ISM services survey, and a rise in jobless claims.

In May, the US economy added 137,000 jobs, slightly exceeding expectations. The unemployment rate remained unchanged at 4.2%, while wages increased by 0.4%, outpacing forecasts of 0.3%. Although previous job growth figures were revised lower, the latest data suggest that the labour market is cooling but has not deteriorated significantly.

So far in 2025, monthly job gains have averaged around 120,000 — a noticeable decline from the roughly 230,000 monthly average seen during the 2010s, when the labour force was smaller. Crucially, recent hiring has been highly concentrated in just a few sectors. Growth continues to be driven by services, with education and health services alone responsible for more than half of all job creation this year. Other service-oriented industries, such as leisure and hospitality as well as financial services, have also posted modest increases. In contrast, employment in manufacturing, mining, and agriculture — sectors more vulnerable to trade frictions and tariff shifts — has declined.

Euro struggles for direction as data and central bank signals collide

Last week, the euro faced yet another tug-of-war, with market sentiment caught between mixed signals from the United States and a resolutely firm European Central Bank. At the start of the week, traders appeared to shrug off robust figures for personal spending and job openings in the US, instead choosing to focus on weaker data from the services sector and employment surveys. This, combined with a notably firm stance from the ECB, briefly lifted the euro towards the $1.15 level against the dollar. However, that momentum was swiftly reversed following the release of strong US employment figures on Friday, which dragged the currency pair back towards $1.14.

Although the euro has shown some resilience, any lasting gains still hinge largely on the dollar losing ground. Price movements have been increasingly detached from economic fundamentals, making the path ahead uncertain. In the short run, fluctuations in bond markets may provide further opportunities for the euro to push higher. Over a longer period, however, the comparative strength of the US and European economies will be the key factor in determining whether the euro can sustain an upward trend.

Within the Eurozone, the ECB proceeded with a widely anticipated quarter-point rate reduction. However, President Lagarde’s unexpectedly firm message caught markets off guard. She indicated that the central bank is nearing the conclusion of its cycle of rate cuts, helping to bolster the euro even as inflation in May dipped to 1.9% year-on-year. Updated projections now suggest inflation could ease to 1.6% by 2026, though Lagarde played down the change, attributing it to lower energy prices and a stronger euro. The single currency was further supported by a rise in short-term interest rates, as traders began scaling back expectations of deeper monetary easing.

Looking to the week ahead, a number of important indicators from the Eurozone will help shape investor outlook. The Sentix survey is expected to shed light on investor morale in early June, following a strong rebound in May after April’s post-holiday lull. Meanwhile, inflation data from Germany and the latest EU employment figures will provide further insight into the region’s economic health.

Pound rallies lose steam as US data and UK growth concerns weigh

The pound made a brief push above $1.36 last week, reaching its strongest level since February 2022 — a milestone crossed only rarely in the post-Brexit era. However, the rally proved short-lived, with sterling retreating towards $1.35 after stronger-than-expected US jobs data prompted traders to reassess their optimistic positioning.

Against the euro, the pound has struggled to regain ground near the €1.19 mark, where the 50-day moving average currently hovers. Support has emerged from the 21-day and 100-day moving averages, but since mid-May, GBP/EUR has remained locked within a tight range. Despite this, differences in real interest rates suggest the pair could be trading closer to €1.20, given that the Bank of England has maintained a more assertive policy stance than the European Central Bank.

Sterling continues to find backing from domestic economic figures, which have generally aligned with the Bank of England’s firmer tone. Last week’s upward revisions to UK purchasing managers’ indices followed a surprising inflation reading in April, both of which have added weight to expectations that interest rates may stay higher for longer. That said, there is increasing speculation that the central bank may shift to a more cautious tone, particularly amid global trade tensions and signs that underlying inflationary pressures are starting to fade. Any such pivot could limit further gains for the pound.

In the days ahead, fresh data on the UK labour market and overall economic activity will provide greater clarity on the outlook. Tuesday’s employment figures and Thursday’s GDP reading are likely to attract close scrutiny. The labour market has shown signs of softening, though long-standing issues with the Office for National Statistics’ data collection methods suggest the figures should be interpreted with care. Meanwhile, monthly GDP is expected to show a modest contraction of 0.1% for April, as the temporary lift from pre-tariff stockpiling fades. Still, consumer spending has remained relatively robust, offering a degree of reassurance about the underlying health of the economy — a factor that should continue to lend some support to the pound.

Markets on Edge Ahead of US Payrolls

The US dollar slipped alongside two-year Treasury yields after a mixed bag of US economic data, though losses were pared following news that Presidents Xi and Trump had agreed to resume trade negotiations. However, the boost to sentiment was short-lived. Risk appetite took a hit later in the day as a public spat between President Trump and Elon Musk sent Tesla shares tumbling 14%, dragging US equity indices lower.

On the data front, the US trade deficit narrowed by 55% in April, the sharpest contraction on record, driven by a steep fall in imports. This reflects a broader shift, as firms scale back the aggressive front-loading of goods seen earlier in the year in anticipation of tariffs. With import flows still disrupted, trade patterns may remain volatile until tariff regimes stabilise.

At the same time, higher-than-expected jobless claims are pointing to emerging cracks in the labour market. Unit labour costs are rising, while productivity remains soft—suggesting that inflationary pressures persist despite signs of economic slowdown. For the Federal Reserve, this complicates the outlook: balancing weak growth with sticky inflation makes the path for interest rates increasingly uncertain.

Attention now turns to today’s US jobs report, which could prove pivotal for the dollar. Markets expect 126,000 jobs to have been added in May, with unemployment holding steady at 4.2%. However, recent survey data suggests a softer labour market, weighed down by tariff-related uncertainty. A weaker print would likely pressure the dollar further, potentially pushing the DXY back towards three-year lows.

The broader FX market is adjusting to softer US data, but with confidence in the dollar’s role as a global reserve currency continuing to erode, rallies remain capped. Fiscal concerns are also back in focus: the Congressional Budget Office now estimates that President Trump’s tax bill will add $2.4 trillion to the federal deficit over the next decade—another headwind for long-term dollar sentiment.

Euro Rallies on Hawkish ECB Surprise

The euro jumped nearly 1% to $1.1495 after ECB President Christine Lagarde struck a surprisingly hawkish tone in Thursday’s press conference, despite delivering a widely expected 25bp rate cut to 2%. German two-year yields also climbed to a two-week high. Lagarde said the current rate level is appropriate and hinted at potential upward revisions to growth forecasts. Notably, the decision to cut was not unanimous.

She acknowledged that trade uncertainty may weigh on exports, but pointed to government spending on defence and infrastructure as possible growth supports. Following the remarks, money markets pared back expectations for additional cuts this year, no longer fully pricing another ECB move by year-end.

Interestingly, the euro’s rally was not solely due to Lagarde’s comments. A concurrent spike in US jobless claims helped fuel EUR/USD gains, as markets grew more confident that the Fed may cut rates at least twice this year. With the traditional link between EUR/USD and US-German yield spreads weakening, trade tensions and broader economic uncertainty are increasingly driving FX direction.

While some of the euro’s momentum faded later in the session, a softer-than-expected US jobs report today could keep EUR/USD comfortably within the $1.14 range into the weekend.

Sterling Hits 40-Month High

The pound briefly broke above $1.36—the highest level since February 2022—driven by broad dollar weakness and improving UK fundamentals. GBP/USD has traded above this threshold only 14% of the time since Brexit, making the move a notable technical milestone.

Should today’s US payrolls disappoint, the pound could make another push higher. Conversely, a strong US print may see it drift back towards the $1.35 region.

Beyond the dollar story, sterling continues to benefit from resilient UK economic data, positive momentum around trade agreements, and a relatively hawkish Bank of England. These factors have underpinned a strong run for the pound, though momentum may soon wane—technical indicators suggest GBP is nearing overbought territory, and traders are trimming bullish bets in the options market.

Against the euro, however, GBP remains rangebound. The pair is struggling to break back above €1.19, where key moving averages are converging. Yet, with real rate differentials favouring the UK, there remains an argument for GBP/EUR to push closer to €1.20—should policy divergence between the BoE and ECB widen further.